Want student loan forgiveness? To qualify, borrowers may need to do this first
The Biden administration has unveiled two sweeping temporary extensions to student loan forgiveness programs. The Ministry of Education has indicated that millions of student borrowers could ultimately benefit, many of them automatically. But other borrowers will first have to take a critical step to qualify for student loan forgiveness: direct loan consolidation.
Here are the details.
PSLF Student Loan Forgiveness
Last October, the Biden administration announced a broad initiative to expand access to the Public Service Loan Forgiveness Program (PSLF). PSLF offers student loan forgiveness to borrowers who work at least 10 years for eligible nonprofit or public organizations. But until Biden’s announcement, the PSLF program had very strict eligibility criteria and was plagued with administrative problems, leading to a refusal rate of up to 99%.
Through the new “Limited PSLF Waiver” program, the Biden administration is temporarily relaxing several basic PSLF eligibility rules to allow many more borrowers to qualify, albeit temporarily. Under the waiver, the Ministry of Education will be able to count past loan repayment periods that would have been rejected under the original PSLF, including payments made under ineligible repayment plans or on types of ineligible federal student loans.
Student borrowers who already have direct program federal student loans — which are loans issued and held directly by the federal government — may not have to do much to qualify, other than submit PSLF employment certificate forms that confirm the borrower’s qualifying employment dates.
But for borrowers with student loans from the FFEL program — an older program where commercial lenders issued federal student loans that were backed or guaranteed by the government — an extra step is required to qualify for the PSLF waiver. limited. The same goes for federal Perkins loans, which are student loans issued by colleges and universities that are also backed or guaranteed by the government, and other non-direct federal student loans.
“If you have Federal Family Education Loans (FFEL) program loans, Federal Perkins loans, or other types of federal student loans that are not direct loans (for example, those from former loans, such as federally insured student loans [FISL] or National Defense Student Loans [NDSL]), you must consolidate these loans into the Direct Lending Program by October 31, 2022,” the Department of Education states. The limited PSLF waiver ends on this date – so to qualify, these borrowers must consolidate into the direct lending program by then.
Student Loan Forgiveness Through Income-Oriented Repayment
Just weeks ago, the Biden administration went even further than the limited PSLF waiver and announced a massive “fix” to income-contingent reimbursement (IDR) plans. IDR programs — which include individual repayment plans such as Income-Based Repayment (IBR) and Pay As You Earn (PAYE) — use a formula to provide borrowers with affordable student loan payments tied to their income.
IDR plans are a mandatory component of the PSLF under the original PSLF program rules. IDR plans also have their own student loan forgiveness (regardless of the borrower’s employment) that takes effect after 20 or 25 years, depending on the specific IDR plan.
But just like with PSLF, IDR program requirements have always been poorly communicated to borrowers. And the government has done a poor job overseeing the program and tracking borrowers’ progress. As a result, according to Ministry of Education statistics, only a few dozen borrowers were eligible for student loan forgiveness under the IDR.
To address these issues, the Biden administration announced a broad “IDR adjustment” whereby many past repayment, forbearance, and deferment periods that otherwise would not count toward the repayment term of a borrower can be counted retroactively. This will benefit millions of borrowers who have been in IDR plans or simply been in repayment for many years, as well as borrowers applying for student loan forgiveness through the PSLF.
But just like with the Limited PSLF Waiver program, borrowers with FFEL loans would need to consolidate to benefit. “If you have FFEL loans held for commercial purposes, you can only benefit from the IDR account adjustment if you consolidate before the end of the implementation of these changes, which is estimated at the earliest on January 1, 2023 “, says the Ministry of Education of published guidelines.
Biden eyes broader student loan waiver
President Biden is also reportedly considering broader student loan forgiveness initiatives. Although he was ruled out for $50,000 or more in student loan forgiveness, he is considering smaller student loan forgiveness amounts. White House officials are debating whether to include income-based eligibility restrictions, which could lead to a formal application process borrowers would have to endure.
While it is too early to know whether FFEL borrowers would need to consolidate into the direct consolidation program to benefit from it, it is certainly a possibility, in light of how the administration is implementing the limited PSLF waiver. and IDR adjustment.
Next steps for borrowers applying for student loan forgiveness
Borrowers who are interested in the Biden administration’s latest student loan forgiveness initiatives should review current Department of Education guidance and determine if action is needed:
As part of the limited PSLF waiver and IDR adjustment, the Ministry of Education has indicated that periods prior to loan consolidation may be considered for loan forgiveness, which has not always been the case.
Note that the Federal Direct Consolidation Loan process can take 30-60 days, so borrowers should not wait until the last minute to proceed. Direct loan consolidation may not be the right decision for all borrowers, so it is important to understand how each initiative works before consolidating.
Further Reading on Student Loans
40,000 student borrowers will automatically get ‘immediate debt cancellation’ – but questions remain
Thousands of Jobs Qualify for Expanded Student Loan Forgiveness Program
Who qualifies for student loan relief under Biden’s huge new income-based repayment expansion
Student Loan Forgiveness: Department of Education Launches Appeals Process for Civil Service Borrowers