The Department of Education recently announced it would be forgiving $39 billion in student loan debt for 804,000 federal student loan borrowers. Although the forgiveness plan has faced legal challenges, a federal judge has already dismissed the lawsuit seeking to block it, so it can now proceed as planned.
Who qualifies for this loan forgiveness, and why are so many student loans suddenly being forgiven? Here's a rundown of who might be about to have their student loan balances wiped clean and why you might benefit from this forgiveness initiative, even if your loans aren't being forgiven right away.
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Why are 804,000 student loan borrowers about to get forgiveness?
Millions of federal student loan borrowers are enrolled in income-driven repayment (IDR) plans. These plans limit borrowers' monthly payments to a certain percentage of their discretionary income. In addition, income-driven plans promise to forgive any remaining balance after either 20 or 25 years of repayment, depending on the specific repayment plan and the types of loans the borrower has.
One big problem is that many borrowers have been paying for much longer than they have been given credit for. To fix this, the Department of Education is in the process of conducting a one-time account adjustment that will credit borrowers for certain periods that had previously not been considered "qualified payments" for the purpose of IDR loan forgiveness.
Specifically, the adjustment will now count:
- Any time in any repayment status, regardless of the repayment plan or how much was paid
- Periods of forbearance of 12 or more months, or more than 36 months altogether
- Certain periods when loans were in deferment
- Any repayment that took place before loans were consolidated
As a result of this one-time adjustment to the months of repayment, many borrowers will now be over the required repayment period of 20 or 25 years and will qualify for immediate loan forgiveness. What's more, the adjustment is likely to find that some borrowers have been paying on their loans for too long -- and may be eligible for a refund of some of the payments they've already made.
Are you one of the 804,000 who qualify?
Since this round of forgiveness is a direct result of the one-time adjustment to payment counts, the 804,000 borrowers who are expected to get forgiveness are those who have already fulfilled the repayment-term requirement (20 or 25 years), according to their income-driven repayment plan. So the short answer is that if you've been paying your loans for at least 20 years and only have undergraduate loans, you could be a part of this initial forgiveness round. If you had any graduate school federal student loans and have been paying for 25 years or more, the same could apply to you.
Consider this example. Let's say that you've been out of school for more than two decades and only had loans for undergraduate study, but you currently have credit for 14 years (168 months) of payments. However, if this one-time adjustment adds credit for three years when you were enrolled in the extended repayment plan, one year when your loans were in a hardship deferment, and the 3 1/2 years of the COVID-19 payment pause, it will push you over the 20-year mark when it comes to payment credit.
The intention of this one-time adjustment isn't to create a new forgiveness program. It's to fix a forgiveness program that has already been in existence for many years but for one reason or another, hasn't given borrowers the credit they're due.
Even if you aren't getting forgiveness this time, you should still pay attention
If it's been less than 20 years since you graduated or left school, you're probably not part of the $39 billion in loan forgiveness that's been in the news. But that doesn't mean you aren't benefiting from this one-time adjustment to the payment count. The administration estimates that millions of borrowers will receive credit for at least three additional years' worth of payments, and this could certainly bring you closer to forgiveness.
Plus, when you combine the additional months or years of payment credit with the new SAVE Plan, which is by far the most generous income-driven repayment plan to date, you could end up getting more of your loans forgiven. This would also be in a much shorter time frame than you might have previously expected.
