Borrowers’ Federal Student Debt Forgiven through IDR Account Adjustment

Federal student loan borrowers started receiving notice in mid-August that their balances had been forgiven as part of the Dept. of Ed’s payment recount—the IDR Account Adjustment. Those making payments on their Direct Loans, while on qualifying income-driven repayment (IDR) plans, should have seen those loans wiped out after 25 years, but mismanagement by loan servicers, inconsistent counts, and changes to the federal aid system over the decades have left hundreds of thousands of borrowers still in repayment. Finally, they’re getting their due as loans are forgiven, and thousands more could still qualify! 

Fixes to Income-Driven Repayment

IDR plans look at the income you bring home every month and determine how much the Dept. of Ed. thinks you should be able to pay. The caveat is that, since this number is lower than your regular 10-year plan, the repayment term is longer—up to 15 years longer. Once you’ve met the length of that term, either 20 or 25 years based on the plan, the remaining balance should be forgiven. It’s not perfect, and—as we said above—some borrowers have paid beyond that term for a variety of reasons. Enter the IDR Account Adjustment; it will count a number of things that were previously overlooked, such as:

• any months in a repayment status, regardless of the payments made, loan type, or repayment plan;
• 12 or more months of consecutive forbearance or 36 or more months of cumulative forbearance;
• months spent in economic hardship or military deferments after 2013;
• months spent in any deferment (with the exception of in-school deferment) prior to 2013; and
• any time in repayment on earlier loans prior to the consolidation of those loans into a consolidation loan.

These corrections have allowed some 804,000 borrowers to receive loan forgiveness—finally! They only apply, however, to those with federal Direct Loans. Those with other types of federal loans, such as FFELs, are excluded. But don’t lose hope! That last point is special, just for those with non-Direct federal loans; if you consolidate your FFELs into a Direct Consolidation Loan, you too can qualify! Take care, however, because consolidation is a permanent decision—there’s no going back after you do it—so make sure that you know exactly what you’re doing before you take the plunge!

If you have questions about whether your loans qualify for forgiveness under the IDR Account Adjustment, are wondering about consolidation, or how you could be impacted by federal loan forgiveness—such as whether that forgiveness may be taxed(!)—contact your student loan professional. It’s an exciting time for federal borrowers; take care to put yourself in the best position to take advantage of it!