Student debt can be overwhelming. If you have a high balance or have been making payments for years, then it may feel like your loans will never come to an end. Recently, the US Department of Education made updates to its policies that will make it easier for individuals to overcome their student loan debt.
Some of the largest changes to their policies will make loan forgiveness more accessible to individuals on an Income-Driven Repayment Plan, which could offer relief to thousands of students across the country. To take advantage of these new updates to student loan forgiveness, it’s important to understand how they work and who qualifies.
What Is an Income-Driven Repayment Plan?
Income-driven repayment (IDR) plans are designed to help individuals who have student loan payments that are disproportionately high compared to their income. These plans calculate your required payments based on how much you earn annually rather than how much you owe. As a result, your payments could be lower and much more affordable than standard repayment options. Consumers may qualify for one of these four types of IDR plans:
- Pay As You Earn (PAYE): Takes monthly payments at 10% of your discretionary income without exceeding what you would normally pay with a Standard Repayment Plan.
- Revised Pay As You Earn (REPAYE): Takes monthly payments at 10% of your discretionary income.
- Income-Based Repayment (IBR): Takes monthly payments at 10-15% of your discretionary income based on what you borrow, without exceeding what you would normally pay on a 10-year standard repayment plan.
- Income-Contingent Repayment (ICR): Takes monthly payments at 20% of your discretionary income, or the amount you would pay over a 12-year fixed payment plan – whichever is less.
Problems with IDR and Student Loan Forgiveness
Most individuals on an IDR can qualify for student loan forgiveness after making consistent payments over 20-25 years. However, there are some challenges associated with IDR plans that could block consumers from having their loans forgiven, even if they qualify. The two main obstacles to having your loans forgiven on an IDR plan are:
- Progress tracking: To have your student loans forgiven, you must make a certain amount of qualifying payments over the course of 20 to 25 years. One of the largest challenges associated with IDR and student loan forgiveness is progress tracking. Lack of documentation makes it difficult or impossible for consumers to tell when student loans are due to be forgiven.
- Forbearance steering: IDR plans and student loan forgiveness can be hugely beneficial to consumers, but they are not ideal for loan providers. For this reason, many servicers broke the Education Department’s rules by pushing consumers toward forbearance – or payment pauses – rather than educating them about IDR options. These pauses are not a long-term solution and can allow your balance to grow even more. Not only that, but they also do not count toward student loan forgiveness requirements.
Updates to Student Loan Forgiveness Policies
The Education Department recognizes the issues associated with IDR plans and loan forgiveness. For this reason, it recently announced policy changes that will make student loan forgiveness more accessible to borrowers. These policy updates include:
- Counting certain long-term forbearances toward IDR forgiveness: To account for previous instances of forbearance steering, the Education Department will make a one-time adjustment to retroactively count long-term forbearances toward forgiveness. This will include a 12-month limit for a single stretch of forbearance, and a 36-month limit for cumulative pauses.
- Increasing oversight on service providers’ use of forbearance: In order to prevent future forbearance steering, the Education Department will work with the Consumer Financial Protection Bureau to monitor and regularly audit each loan provider’s use of forbearance.
- Performing a one-time revision of IDR payments to remedy inaccuracies: Past documentation inaccuracies could prevent qualifying consumers from having their loans forgiven. To remedy these previous mistakes, the Federal Student Aid (FSA) will perform a one-time revision that will retroactively count any months in which borrowers made payments toward IDR.
- Upheaving the IDR tracking system for better documentation: To permanently fix the IDR payment counting system and prevent future mistakes, the Federal Student Aid office (FSA) will begin displaying IDR payment counts on each consumer’s Student Aid account. This will simplify the counting and tracking process, while showing consumers exactly how close they are to loan forgiveness.
Do FFELP Loans Qualify?
Federal Family Education Loan Program (FFELP) student loans are privately owned but federally backed. Most loans taken out prior to 2010 are FFELP loans, though your service provider can help you determine which type of loan you have if you aren’t certain.
Though FFELP loans can benefit from these updates to student loan forgiveness, consumers must apply to consolidate any commercially held loans into a Direct Loan to qualify. If you want to take advantage of the new IDR fixes, you need to apply for loan consolidation by January 1, 2023.
Get Help With Your Student Debt
If you’re struggling with student debt, now is the time to take action! While it may feel intimidating to navigate all of the Education Department’s student loan policies, you don’t have to manage it all on your own. At OlsenDaines, it’s our goal to help eliminate the stress of debt so you can regain control over your finances. With over 40 years of experience serving Oregon residents, our debt relief attorneys know the intricacies of local and federal laws. We know what it takes to help you get the best outcomes possible, so you can get one step closer to a life without debt. To get help with debt relief, schedule your free legal consultation today!