If you think your federal student loan servicer didn’t give you the best information, and may have even cost you money — or if you think you were unfairly denied loan forgiveness — then you might be in for some good news.
In an April 19 release, the Department of Education stated it is making a series of fixes to the past treatment of federal student loans, particularly where income-driven repayment (IDR) and Public Service Loan Forgiveness (PSLF) are concerned.
Previously, some student loan servicers would advise borrowers who were having trouble repaying their debt to pause their repayment through forbearance (a temporary stop), even though in many cases these borrowers might have been better off with an IDR program.
Through IDR, a borrower’s monthly student loan bill is capped at a percentage of their disposable income — and if that person is unemployed, they might owe “zero dollars” each month. After 20 or 25 years on an IDR program (depending on which one you join), the remaining balance is forgiven.
In its announcement, the Department of Education cited “inappropriate steering into long-term forbearance,” in some cases beyond government-set limits on the length of time you can pause repayment.
Previous reviews by Federal Student Aid “suggest that loan servicers placed borrowers into forbearance in violation of department rules, even when their monthly payment under an IDR plan could have been as low as zero dollars.” (Note that since July 2020, repayment has been automatically paused for all federally held student loans due to the COVID-19 pandemic — you can see more details in this report.)
In order to fix past errors, the department said it would be making a “one-time account adjustment” that will, in certain cases, count past forbearance toward IDR forgiveness.
Specifically, any forbearances of more than 12 months consecutively or more than 36 months cumulatively may now count toward forgiveness under IDR.
Such forbearances may also count as “payments” for PSLF, a program that offers to wipe away your student loans after 120 payments, so long as you work for an eligible government agency or nonprofit.
In a separate announcement last year, the Department of Education said it was easing the rules to qualify for PSLF — and would even allow some borrowers to retroactively count previous payments toward forgiveness, as long as they apply for this redress by Oct. 31, 2022. So if you think you might be eligible, you’ll want to look into this soon.
The department said that these moves would “address historical failures in the administration of the federal student loan program,” and based on their data, they could result in:
- More than 3.6 million borrowers getting credit for three or more years of additional payments under IDR
- At least 40,000 borrowers receiving “immediate debt cancellation” under PSLF
If you suspect you were incorrectly steered into forbearance, the government is encouraging you to get in touch with the Federal Student Aid Ombudsman office (at StudentAid.gov/feedback) for an account review.
The Department of Education noted that while implementation of these reforms had begun, “borrowers may not see the effect in their accounts until the last quarter of 2022.”
Meanwhile, it also plans to increase its oversight of forbearance use, including restrictions on allowing borrowers to pause their repayment by text or email.
Further, the government says it will allow borrowers to see their number of IDR-eligible payments via the Federal Student Aid portal at Studentaid.gov, starting next year.