On Tuesday, the US Department of Education announced a waiver for income-driven repayment plans that is expected to impact more than 3.6 million borrowers, 40,000 of whom are expected to receive immediate loan forgiveness. student.

Income-based reimbursement has come under scrutiny

Income Contingent Repayment (IDR) plans are a federal program for student borrowers who are struggling to make their monthly payments. IDR plans base borrowers’ monthly payments on annual income and family size, and after 20 to 25 years of qualifying payments, the remaining balance is forgiven.

However, many have criticized the strict forgiveness requirements and the inability of repairers to properly implement the program. NPR recently released the results of a survey showing that poor management by service agents has potentially caused millions of borrowers to miss forgiveness via IDR. The investigation follows a report by the National Consumer Law Center report showing that of the 2 million federal borrowers with at least 20 years of student loan repayment under their belt, only 32 borrowers actually received a rebate through IDR.

Millions of borrowers will receive credit for income-based repayment

The Department of Education announced specific steps to “help restore the promise of IDR plans” and address what U.S. Secretary of Education Miguel Cardona called “administrative failures” of the federal education program. sorry.

According to the department’s press release, the changes will automatically allow many borrowers to progress to IDR or Public Service Loan Forgiveness (PSLF):

• Several thousand borrowers with older loans are expected to receive immediate forgiveness through IDR.
• At least 40,000 borrowers are expected to receive immediate student loan forgiveness through public service loan forgiveness.
• More than 3.6 million borrowers are expected to receive at least three years of additional IDR credit.

To accomplish this, Federal Student Aid (FSA) plans to address forbearance management issues and revise the IDR payment tracking process.

FSA will target forbearance steering

Repairers are required to provide borrowers with information about all of their federal relief options if they are faced with a payment default; however, FSA reviews suggest that service agents routinely diverted borrowers from federal relief programs like IDR and instead placed them in costly forbearance periods. Navient, one of the department’s former duty officers, recently faced a costly settlement for such behavior.

To remedy this, the FSA will make a single account adjustment for borrowers placed on long-term forbearance: periods of forbearance of more than 12 consecutive months and more than 36 cumulative months will be counted as an IDR or PSLF credit . Borrowers who have been directed to shorter forbearance periods can also contact the FSA ombudsman to file a complaint and request a formal account review.

Going forward, the FSA will also exercise greater scrutiny to ensure managers are not misleading borrowers into forbearance. These actions include:

• Restrict the ability of services to register borrowers for forbearance via SMS or email.
• Conduct an internal review of repairer practices and forbearance registration models.
• Work with the Consumer Financial Protection Bureau to conduct regular audits of forbearance use.

“This will build on other efforts by the FSA to improve oversight of loan servicing activities, including stronger liability provisions in servicing contracts, renewed partnerships with federal and state regulators and the clarification of its position on federal preemption of state oversight of loan servicing,” the press release read. .

The FSA will work to improve progress in monitoring IDR payments

IDR-enrolled borrowers rely on the Department of Education and Lending Services to track their eligible payments and credit for forgiveness. However, the department’s review revealed that this process was riddled with inaccuracies due to the payment tracking system currently in place.

To rectify past payment count inaccuracies, the FSA will conduct a one-time review of all eligible IDR payments. All months in which payments were made on direct loans and FFEL loans, regardless of repayment plan, will count towards IDR relief. This includes payments made on consolidated loans prior to consolidation. Months spent in deferment before 2013 will also count towards the cancellation of the IDR. The ministry has hinted that permanent changes along these lines may be coming soon.

The FSA will also hold federal departments to a higher standard for tracking payment and remittance progress. A big step is the promise to automatically show borrower payment counts on the federal student aid website when they log on. This new feature is expected to launch in 2023.

Borrowers will likely see changes in late 2022

Borrowers who are impacted by this one-time waiver will most likely see these changes reflected in their accounts in the last quarter of 2022. For borrowers who have already made significant progress on an income-driven repayment plan, this could mean the cancellation of their remaining loan balance.

People enrolled in IDR plans don’t have to do anything to qualify for reviews, but they should keep an eye out for any new information or account changes from their service agent. Those interested in an IDR plan can apply for one on the FSA website, although they are not eligible for retroactive relief measures and payment credit.