On Friday, July 14th, the Department of Education made an announcement that it would be canceling the remaining balances for 804,000 borrowers who had spent 20 to 25 years in repayment on their federal student loans. This is the first major wave of loan forgiveness through the Income-Driven Repayment (IDR) programs created in the 1990s. IDR programs allow borrowers to make payments based on their income and forgive any remaining balance after 20 or 25 years of qualifying time in repayment. The Department of Education recounted borrowers’ qualifying time in the program, resulting in this large batch of canceled balances.
The IDR Account Adjustment puts millions of borrowers closer to being debt-free after 20 to 25 years in repayment by counting more past time, including all time in repayment and some periods of forbearance and deferments, towards IDR forgiveness. The Department adjusted the accounts of borrowers who had reached or exceeded the qualifying period first and will continue to adjust all accounts until 2024. Borrowers who are not yet eligible for cancellation will see an adjustment to their accounts next year reflecting their updated number of qualifying months. For more information about the details of the IDR Account Adjustment, refer to our blog post here.
What do I need to know if I’m eligible for loan cancellation now through IDR?
The Department of Education is emailing borrowers eligible to have some or all of their outstanding loans forgiven. Borrowers have 30 days to opt out, after which the Department will proceed with canceling the balance of their eligible loans. Most borrowers will not want to opt out, as loans forgiven through IDR before December 31, 2025, do not have to be reported for federal income tax purposes. However, there may be reporting requirements for state tax purposes in some states.
One reason for considering opting out is if you have multiple outstanding federal student loans, and only some are eligible for cancellation. By opting out and consolidating your loans, you could make all your loans eligible for forgiveness. It’s important to check if you have any commercially-held FFEL loans, school-held Perkins loans, or HEAL loans as these are only eligible for the IDR Account Adjustment through consolidation into a Direct Consolidation Loan. Borrowers have until April 30, 2024 to consolidate their loans to take full advantage of the IDR Account Adjustment.
Why did the Department implement an IDR Account Adjustment?
The IDR Account Adjustment was implemented to address long-standing problems in the student loan system that resulted in inaccurate payment counts and borrowers wrongly being denied credit towards IDR forgiveness. Various investigations and reports revealed that servicers were steering borrowers into long-term forbearances instead of offering information about lower payment options within IDR plans, and there were inaccuracies in the payment history records. The IDR Account Adjustment aims to rectify these historical inaccuracies and errors that deprived millions of borrowers of progress towards loan forgiveness promised by the IDR program.
