Including Parent PLUS Borrowers Who May Receive Credit Towards Public Service Loan Forgiveness (PSLF)
By Kyra Taylor, National Consumer Law Center and Winston Berkman-Breen, Student Borrower Protection Center
This blog is the first post in a three-part series about the IDR Account Adjustment and the continued flexibilities available to borrowers seeking Public Service Loan Forgiveness. For information about how the Account Adjustment will impact PSLF borrowers, see the second post here.
The Income-Driven Repayment plans set borrowers’ monthly payment amount based on their income and provide them with cancellation of their remaining balance after 20 or 25 years of repayment. For low-income borrowers, these plans may result in low or $0 monthly payments and are critical tools to help them avoid financial distress, delinquency, and default. However, an NPR investigative report revealed that there were sweeping problems with how the IDR plans were managed and how records were kept—problems that resulted in only a handful of borrowers receiving IDR cancellation even though millions should have been eligible. One significant barrier between borrowers and an IDR plan was poor communication: loan servicers failed to tell borrowers that they were eligible to enroll in an IDR plan or provided them with inaccurate information about their repayment status and options.
In addition, these issues affected borrowers aiming for Public Service Loan Forgiveness, which cancels a borrower’s federal student loans after they make 120 payments on an IDR plan or the standard 10-year plan while they were employed by a qualifying public service employer.
In response, in April 2022, the Department of Education announced that it would engage in a one-time adjustment of borrowers’ accounts to correct for prior missed opportunities to enroll in an IDR plan, errors in recordkeeping, and other mistakes that harmed borrowers. More information about how the one-time adjustment will affect borrowers’ accounts is below.
What Will Count And What Won’t Count After the IDR Account Adjustment Is Applied
Under the account adjustment, the time that accrued after July 1, 1994 will now be counted as IDR-qualifying months, even if the borrower was not enrolled in an IDR plan at the time:
- any months in a repayment status, regardless of the payments made, loan type, or repayment plan;
- 12 or more months of consecutive forbearance or 36 or more months of cumulative forbearance
Note: borrowers can also submit a complaint to the Federal Loan Ombudsman’s office here to request that shorter periods of forbearance be counted if the borrower was subjected to forbearance-steering or was not told that they could enroll in IDR
- months spent in economic hardship or military deferments after 2013;
- months spent in any deferment (except in-school deferment) prior to 2013; and
- for consolidation loans, any time in repayment for the loans before they were consolidated.
Note: “Consolidation” is done by taking out a new federal Direct Consolidation Loan and using it to pay off an existing federal student loan. It can convert other types of federal loans into Direct Loans. Borrowers who are not sure what type of loan they have can follow these steps to check their accounts. Borrowers can also confirm whether their loans are owned by the Department of Education or whether they are commercially held by following these steps.
The following periods still will not count as a IDR-qualifying months:
- Time in default if the borrower defaulted on their loans before March 13, 2020;
- In school deferments;
- Months where the borrowers’ loans were subject to a court-judgment.
All Direct Loans and FFEL or Perkins loans owned by the Department of Education are eligible for the account adjustment (including Parent PLUS loans!). These loans have received the COVID-19 payment pause since March 2022.
However, the following loan types will be excluded from the IDR account adjustment unless the borrower consolidates them into a Direct Consolidation Loan before April 30, 2024 (updated from the original deadline of December 31, 2023):
- Commercially-held FFEL loans
- Perkins Loans that are held by a school
- Health Education Assistance Loan (HEAL) loans
Once the accounts have been “adjusted,” borrowers can continue to accrue additional IDR credits that will eventually result in debt cancellation, but they will have to actively enroll in an IDR plan, recertify their income each year to remain in the plan, and make payments as required (more information on picking an IDR plan is here). The Account Adjustment will only give credit for past time in forbearances, deferments, and non-qualifying plans, and will only occur once (i.e. it will not apply after the account has been adjusted).
Note for Parent PLUS Loan borrowers: normally Parent PLUS Loans are not eligible to enroll in an IDR plan until they are consolidated into Direct Consolidation Loans, at which point they become eligible for one plan, the Income Contingent Repayment plan (ICR). While ICR is more generous than standard repayment, it is one of the most expensive IDR plans. Through the Account Adjustment, Parent PLUS Loan borrowers will soon have IDR credits— even if they haven’t consolidated. However, Parent PLUS borrowers who will not achieve cancellation when the account adjustment occurs will need to consolidate their Parent PLUS loan so that they can receive more IDR credits in the future and eventually achieve cancellation. Right now, borrowers will not lose any time in repayment when they consolidate, so Parent PLUS Loan borrowers should consider whether to consolidate their Parent PLUS loans by the current April 30, 2024 (updated from the original deadline of December 31, 2023) deadline.
Maximizing the Account Adjustment: Consolidating Loans Held By Third-parties And Loans With Different Repayment Periods
As discussed above, borrowers who have loans that are held by third parties must consolidate those loans into a Direct Consolidation Loan (loans that are always held by the Department of Education) to benefit from the IDR account adjustment.
However, borrowers that have loans with different periods of time in repayment should also consider consolidating those newer and older loans together so that the Direct Consolidation Loan is credited with the longest period of repayment that accrued on the older loans before consolidation. Otherwise, only the loan that reached 20 or 25 years of qualifying repayment would be cancelled, leaving the newer loans to stay in repayment.
Example:
Mary took out a Direct loan (Loan #1) in 2000 to complete an associates degree. In 2001 that loan went into repayment. Mary then was in repayment for 9 years. In 2010, Mary took out another Direct loan (Loan #2) to return to school. Loan #1 was in an in-school deferment while she was in school from 2010-2012 to complete her associates degree. Both Loan #1 and Loan #2 went into repayment again in 2012. Mary has never been in default.
If Mary doesn’t consolidate:
- Loan #1= 9 years in repayment (2001-2010) + 11 years in repayment (2012-2023)= 20 years in repayment & will be cancelled.
- Loan #2= 11 years in repayment (2012-2023). Loan #2 will need 9 more years of repayment to get to cancellation under the IDR plans.
If Mary does consolidate:
- The new consolidation loan (Loan #1 + Loan #2) will have 20 years in repayment, because Loan #1 accrued 20 years of qualifying time. Mary will have all of her debt cancelled.
Example B:
Fred began his bachelor’s degree and took out a Direct loan. That loan, Loan #1, went into repayment in 1995. Fred returned to school part time to complete his bachelors degree and took out another Direct Loan (Loan #2). While he was in school, he did not use an in-school forbearance and kept Loan #1 in repayment. Loan #2 went into repayment in 2005. Fred went into default on Loan #1 in 2006, but has stayed in repayment on Loan #2. Fred has only borrowed federal aid for undergraduate programs.
If Fred does not consolidate:
- Loan #1 will be credited with 11 years in repayment (1995-2006, the time the loan has been in default will not count).
- Loan #2 will be credited with 18 years in repayment (2005-2023).
= neither loan will receive cancellation.
If Fred does consolidate:
- The new consolidation loan will be credited with 28 years of repayment (11 years for the time in repayment from 1995-2006 on loan 1 + 17 years for the time in repayment from 2006-2023 on loan 2) and will be cancelled.
Note: borrowers cannot double dip and receive additional qualifying months for the same period of time two loans were in repayment. So Fred will only receive 1 year of qualifying time for 2005-2006 even though both loans were concurrently in repayment.
When Will Borrowers See Changes To Their Accounts?
We expect that the account adjustment will get millions of people to cancellation over the next few months. Currently, the Department is only processing the IDR account adjustment for borrowers who have 240 IDR-qualifying months (if the borrower only borrowed loans for an undergraduate program) or 300 qualifying months (if the borrower borrowed loans for a graduate program) so that their loans can be promptly cancelled. It will apply the account adjustment to all other borrowers’ loans later this or next year.
In its FAQ for the IDR Account Adjustment, the Department stated that borrowers who reach cancellation before August 1, 2023 should have their loans cancelled before repayment restarts. It has also stated that borrowers who reach cancellation after August 1, 2023 will go back into repayment when the payment pause is over, but can obtain a refund for payments made beyond 240 or 300 qualifying payments.
When the Department is adjusting all borrowers’ accounts, it will publish the months that count towards IDR cancellation on the borrower’s studentaid.gov account. As soon as the Department has calculated the number of months that borrower needs to obtain cancellation, either the Department or the servicer will send the borrower a notice. If borrowers disagree with the number of months that count after the account adjustment has been applied, then they can submit a complaint to the FSA Ombudsman explaining why they think more months should count.
