The Biden administration has announced several student loan forgiveness initiatives over the course of the last year. And each program is in a distinct operational phase.
Depending on a borrower’s specific circumstances, it is possible to apply for multiple student loan forgiveness programs to maximize the available benefits. But there are some important considerations that borrowers should factor in.
Here’s what borrowers need to know.
Limited PSLF Waiver Has Ended, But Student Loan Forgiveness Is Still Happening
The Biden administration enacted the Limited PSLF Waiver last year to address longstanding problems with Public Service Loan Forgiveness, a federal student loan forgiveness program for borrowers who devote their careers to nonprofit or public sector work.
Under the Limited PSLF Waiver, the Education Department can count certain prior loan repayment, deferment, and forbearance periods as “qualifying payments” towards student loan forgiveness under PSLF that previously might have been ineligible. There is no cap or limit on the amount of student loan forgiveness under this initiative.
The Limited PSLF Waiver ended on October 31, but the Education Department and MOHELA — its contracted PSLF servicer — is still processing a backlog of applications.
Borrowers who have already applied for student loan forgiveness under the Limited PSLF Waiver can still potentially benefit from other recent Biden administration initiatives.
Student Loan Forgiveness Through IDR Account Adjustment Just Getting Started
The Biden administration recently announced the initial rollout of the IDR Account Adjustment program. Like the Limited PSLF Waiver, the IDR Account Adjustment permits the Department of Education to credit past loan periods (including certain periods of repayment, deferment and forbearance) towards a borrower’s student loan forgiveness term under 20-year or 25-year Income Driven Repayment (IDR) plans, even if they are not presently in such a plan. Like PSLF, student loan forgiveness under IDR has no cap.
The IDR Account Adjustment will also effectively extend many of the benefits of the Limited PSLF Waiver, since the same periods that can count towards loan forgiveness through the adjustment will also count towards loan forgiveness under PSLF for borrowers who were working in qualifying PSLF employment during those periods.
The Education Department will implement the IDR Account Adjustment automatically in July 2023 for all borrowers with government-held federal student loans. This includes all federal Direct loans, as well as federally-held FFELP loans. Borrowers can receive simultaneous credit towards both IDR and PSLF under this program, although PSLF borrowers can only receive that credit if they submit properly completed PSLF Employment Certification forms.
Some borrowers will need to consolidate their loans through the federal Direct consolidation loan program to benefit from the IDR Account Adjustment. Borrowers pursuing PSLF would need to consolidate any FFELP loans — including FFELP loans held by the federal government — into a Direct loan. And borrowers with commercially-held FFELP loans would also need to consolidate to get any benefits under the IDR Account Adjustment.
“Borrowers who have commercially managed FFEL, Perkins, Health Education Assistance Loan (HEAL) Program, or other non-Direct Loan loans should apply for a Direct Consolidation Loan by May 1, 2023, to get the full benefits of the one-time account adjustment,” according to updated Education Department guidance.
Biden’s One-Time Student Loan Forgiveness Plan
President Biden announced a separate, one-time student loan forgiveness program in August. Under that plan, millions of borrowers can receive up to$20,000 in student loan forgiveness (or $10,000 if they did not receive a Pell Grant). Qualifying single and married-filing-separately borrowers must have earned under $125,000 in either 2020 or 2021, and married-filing-jointly borrowers must have earned under $250,000.
The administration unveiled a student loan forgiveness application for the program in October. Since then, 26 million borrowers have applied. The application will remain available through December 2023.
However, a federal appeals court temporarily blocked the initiative last month in response to legal challenges. A subsequent ruling is expected any day, but ongoing legal challenges may further delay implementation of the initiative. The legality of the program may ultimately end up before the Supreme Court.
The Education Department had originally indicated that borrowers with commercially-held FFELP loans could consolidate those loans into a Direct consolidation loan to qualify for Biden’s one-time cancellation initiative, just like for PSLF and the IDR Account Adjustment. But in response to anticipated legal challenges, in September the administration abruptly reversed course and excluded commercial FFELP loans from eligibility, even if consolidated into a Direct loan.
More concerning for some borrowers is that, according to updated Education Department guidance, “Consolidation loans comprised of any FFEL or Perkins loans not held by [the government] are… eligible [for one-time student debt relief], as long as the borrower applied for consolidation before Sept. 29, 2022” (emphasis added). The implication of this statement is that Direct consolidation loans that contain any commercial FFELP or Perkins loans based on a consolidation application submitted after September 28, 2022 would not qualify for the one-time loan forgiveness benefit.
In other words, for borrowers with a mix of government-held Direct or FFELP loans and commercial FFELP loans, the situation can be a bit complicated. They may qualify for student loan forgiveness programs like the IDR Account Adjustment, but if they want to maximize benefits, they would need to consolidate, according to the Education Department. However, the inclusion of a single commercial FFELP or Perkins loan in a new consolidation after September 28, 2022 could effectively taint that entire new Direct consolidation loan, rendering it ineligible for the $10,000 or $20,000 in one-time student loan forgiveness, even if it’s necessary to qualify for, or maximize benefits under, PSLF or the IDR Account Adjustment.
Borrowers with commercial FFELP or Perkins loans who are seeking student loan forgiveness through both the one-time cancellation program and the IDR Account Adjustment or PSLF should, therefore, carefully consider their options. Direct loan consolidation is required for these borrowers to benefit from both the IDR Account Adjustment and PSLF, but it may also close the door on one-time debt relief if they combine these with other loans that separately qualify. At the same time, the one-time debt relief program is currently blocked by a federal court, and there are deadlines for applying to all of these programs.
Thus, commercial FFELP borrowers will have to weigh a number of factors — including the type of student loans that they have, their overall balances, the likelihood of receiving relief under any of the programs, and deadlines associated with each program — before making a final decision about whether it makes sense to consolidate.