Spotlight on Student Loans:
Income-Driven Repayment (IDR) Plan Fixes On the Horizon
On April 19th, the U.S. Department of Education announced further updates to the Income-Driven Repayment program for federal student loans, via automatic account adjustments which will impact millions of borrowers.
Income-Driven Repayment: Saving Major Money for Most Borrowers
If you’re paying back federal student loans, there’s a good chance that you’re on an IDR plan: they’re one of the surest ways to save money while in repayment. They’re one of the oldest student loan forgiveness programs, along with Public Service Student Loan Forgiveness, created by Congress in 2007. IDR is certainly the most popular, as it allows borrowers to adjust their monthly payments according to their discretionary income and become eligible for loan forgiveness after 25 years (or fewer if pursuing PSLF). I.e. if you lose your job or take a pay cut, your payment goes down to accommodate your reduced income. Both IDR and PSLF, however, have suffered from mismanagement by private student loan servicers, which have gone unchecked for years and are only now starting to face serious government oversight.
IDR Plans, Forbearance Steering, & Payment Tracking
Two areas that the Dept. of Ed. has identified as problematic are forbearance steering and payment tracking, both of which have previously been handled by loan servicers. Forbearance—a period in which you don’t have to make payments on your loans—is a useful tool, but can lengthen the period of time before the loan is forgiven. Some borrowers have been steered towards forbearance by their loan servicers, even when it wasn’t necessarily the right choice for their circumstances. From now on, the Dept. of Ed. will take a more active role in monitoring when servicers make that recommendation, and will look back to see whether a borrower’s previous forbearances should be applied towards their loan forgiveness.
In a similar vein, servicers were supposed to track how many payments borrowers had made towards their particular quota for loan forgiveness. We’ve commonly seen servicers undercount the number of qualifying payments our clients have made, leaving them confused and frustrated. Just as with forbearance steering, the Dept. of Ed. will be looking back at borrowers’ payment records and making sure that all qualifying payments have been counted towards loan forgiveness. To prevent future errors, they will be modifying payment counting procedures, and we hope that borrowers will be able to enjoy consistently accurate payment counts.
The federal student loan program still isn’t perfect, and these changes won’t solve every problem, but they’re yet another step along a path of significant improvements. If you’re wondering how these changes could affect your situation, give us a call! Otherwise, stay tuned for more updates on the Biden-Harris Administration’s revamp of federal student loans.
If you’re pursuing Public Service Loan Forgiveness and you haven’t met with us yet, schedule your free 15-minute Discovery Session to find out if you qualify for PSLF, or what you can do if you don’t.