It’s been a good month for those burdened with federal student loan debt. First, the Biden administration extended a moratorium on federal student loan payments and interest charges until August. Then on Tuesday the Department for Education announced it was reviewing payment records to give borrowers more credit for the progress they had made towards loan forgiveness.
The latest changes apply to borrowers registered in a “income-based reimbursementwhich reduces loan repayments for low-income borrowers. The measures will shorten the time before borrowers’ federal student loans are forgiven — and in about 40,000 cases, wipe out the borrower’s remaining balance immediately.
Important reminder: The changes apply only to direct federal student loans, which represent the large majority of outstanding debt, and not to loans issued by individuals. And not all federal loans are eligible for an income-based repayment plan, said Michele Streeter, associate director of policy and advocacy for the Institute for College Access & Success, although borrowers can consolidate their loans by an IDR-eligible loan.
About 9 million borrowers are in IDR plans, which accounts for about 30% of federal student loans, said Regan Fitzgerald, head of the Pew Student Borrower Success Project.
If you are a borrower, you do not have to request the final changes to be made to your account. The Ministry of Education has said it will start applying them automatically, although you may only see the effect on your account in the last three months of 2022.
The announced changes will help borrowers already on the path to canceling their loans, but they stop well short of proposals from Sen. Bernie Sanders (I-Vt.) and others who advocate simply erasing all or part of the borrowers’ debt.
Still, there are steps you can and should take now to ensure you get the most out of it. Here is a brief summary of what the ministry is doing and how you should respond.
Inaccurate record keeping
IDR plans were designed to make college more accessible to low-income people by limiting their monthly debt payments to 10% to 15% of their discretionary incomewhich is defined as the amount they earn above 150% of the federal poverty line. For a single borrower in California, this amount would be any income over $1,700 per month. If they earned less than 150% of the poverty line, their monthly payment would be $0.
These plans do not automatically reduce your debt; in fact, the amount you owe will increase if your monthly payment is less than the amount of accrued interest. But if you hold your payments for 20 years after you enroll in an IDR plan for undergraduate loans, your remaining balance will be forgiven. (Loans for graduate students require 25 years of payments.)
This is how the program is supposed to work. In practice, however, it has been flawed in record keeping who have denied credit to borrowers for months or even years of compliance. The Government Accountability Office highlighted these failures in a report this week.
To address record-keeping issues, the Federal Office of Student Aid “will conduct a one-time review of IDR-eligible payments for all direct student loans and Federal Family Education Loans program loans administered by the federal government,” the Department of Education said. The review will give borrowers credit for all months in which they made payments, including before consolidating their loans. They will also receive credit for any months prior to 2013 when their loan repayments were delayed due to economic hardship.
If the review brings borrowers to the number of payments required for loan forgiveness, their loans will automatically be forgiven, the department said. This usually represents 240 to 300 monthly payments, but participants in the Civil Service Loan Cancellation Program would be eligible after 10 years of payments while working in a school, government agency, or nonprofit company.
The department also pledged to better track IDR payments in the future. Among other things, he said the Federal Student Aid site, StudentAid.govwill start showing borrowers their total payments next year so they can track their progress toward forgiveness.
When borrowers tell the company servicing their loans that they are having difficulty making their payments, the servicing agents are expected to alert them to IDR plans and other lower-cost options, as well as the costs of repayment of their loan. abstention — a form of temporary relief that reduces or suspends payments while allowing interest costs and the debt to grow. But FSA reviews suggest the services repeatedly pushed borrowers into forbearance when IDR would have been a better alternative, the department said. As a result, “long-term use of forbearance was remarkably widespread”, with more than one in eight borrowers from July 2009 to March 2020 being on forbearance for at least three years.
Why would a repairman do this when he stop making money on forbearing borrowers than they do on borrowers under an IDR plan? Jaylon Herbin, head of outreach and policy at the Center for Responsible Lending, noted one possible incentive: Putting a borrower on forbearance is easier and takes less time.
To compensate for piloting forbearance, the department said it will count any prior forbearance of more than 12 consecutive months or more than 36 months in total as if borrowers had remained current on their loans when calculating progress. towards delivery in an IDR plan. Borrowers forced into shorter forbearance periods can seek similar relief by filing a complaint with the FSA Ombudsman at StudentAid.gov/feedback.
The FSA will make this adjustment to the accounts of eligible borrowers later this year, the department said. Combined, adjustments for poor record keeping and direction of forbearance are expected to displace more than 3.6 million borrowers at least three years closer loan forgiveness, the ministry said.
what you must do now
Cody Hounanian, executive director of the Student Debt Crisis Center, said the starting point is having an account on studentaid.gov and making sure the agency has your up-to-date contact information. It’s also important to monitor emails from the agency, he said, adding, “This is an opportunity for borrowers to make sure they’re plugged in.”
FSA has also created a page on his site where borrowers can find the latest information on IDR revisions.
Herbin said it’s also important to figure out who your manager is and what kind of loan you have — in particular, whether you’re in an IDR plan or the civil service loan forgiveness program. Next, he said, you should determine how many payments you have made under that plan or program.
Due to the lengthy COVID-related loan repayment moratorium, many borrowers may have lost track of their servicing agent. Repairmen come and go; the largest, Navient, exited the federal student loan business last year, turning its 5.6 million accounts to Maximum (doing business as Aidvantage). If you don’t know who your repairer is, check your account on studentaid.gov.
Once you’ve determined which company is handling your loan, you can call them and ask for an account of how many payments you’ve made for loan forgiveness, Fitzgerald said. Then you should check this against your own records and see how the tally changes after the new ministry reforms are put in place.
If you don’t get credit for as much progress toward forgiveness as you deserve, the department advises you to file a complaint with your repairer. And if this complaint is not resolved to your satisfaction, you can take your case to the FSA.
In addition to getting records from your duty officer, Streeter said you should be able to download them from the Department of Education website. National Student Loan Data System. But one problem with these downloads, Hounanian said, is that they’re long, cluttered and potentially confusing. “Most borrowers won’t be able to make much sense of it,” he warned.
His group works with Savi, a company that helps borrowers figure out where they stand and explore options for paying off their debt. Borrowers should turn to trusted groups in their community for this kind of help, he said, rather than approaching any company offering to help borrowers online. There are a lot of scammers out there in the debt relief business, Hounanian said, and “when borrowers are confused, that’s when these companies pounce.”
The COVID-related student loan repayment moratorium has helped borrowers in many ways, including IDR forgiveness. If your IDR plan asks you to pay $0 each month, the Department of Education said in an email, you’ll get credit for the months when payments were optional.