How to Get Forgiveness Credit If You Were Steered Into Forbearance

The Public Service Loan Forgiveness (PSLF) waiver, and the ongoing income-driven repayment (IDR) one-time account adjustment or waiver, are two of the most impactful bits of student loan debt relief legislation that we have seen.

If the waivers impact you, you might be years closer to reaching student loan forgiveness than ever. This is true for tens of millions of borrowers and for billions of student loan debt. For some, getting forgiveness on their loan balance is automatic, but others might need to take action to get some or all of the credit they’d qualify for. This might especially be true for borrowers who chose to put their loans into forbearance — or were encouraged into it by their servicer. Here’s what to know if your loans are, or were, in forbearance and whether this forbearance period counts toward loan forgiveness credit.

Forbearance and deferment can be terribly expensive

One of the most common reasons we’ve seen borrowers miss out on would-be forgiveness credit over the years is that they were directed to use a forbearance. For example, their servicer might have suggested it during a student loan repayment period where traditional repayment qualifying payment amounts would have been unaffordable for the borrower. 

A period of forbearance, or in some instances, a period of deferment, can be used to postpone payments from being required on your federal student loans. You pay nothing, interest still accrues, but you are not considered in repayment on a qualifying repayment plan for student loan payment forgiveness purposes.

How the PSLF and IDR Waiver automatically fixed some issues

If you had 12 or more months of forbearance, consecutively, both the Public Service Loan Forgiveness (PSLF) program waiver and now the IDR Waiver/one-time account adjustment automatically count this as time in repayment for forgiveness. 

Similarly, if you’ve had 36 or more months of aggregate forbearance, both waivers automatically count all forbearance toward loan forgiveness. Note that COVID-19 forbearance doesn’t count as time in forbearance toward the 12- and 36-month rule; however, it does automatically count as time in repayment.

Case study example: A physician in forbearance

Consider a first-year resident physician. Their AGI Adjusted Gross Income is $65,000 and they have $400,000 in federal student loan debt. Their spouse has no income, and they have two kids.

Let’s say that they spent 33 months of residency in forbearance. One forbearance was consecutively 12 months; the others were intermittent. Rather than forbearance, and rather than traditional repayment, the physician should have been directed by his or her direct loan program to enroll in an income-driven repayment plan. 

In an IDR plan, say REPAYE, the monthly payment for the first two to three years during training could be $0 per month, and then the payment would increase to approximately $150 per month. 

In REPAYE, when your required payment is $0, you’re benefiting from the plan’s unpaid interest subsidy, as well as making qualifying “payments” in your payment count toward PSLF or IDR forgiveness. 

This is not the case when in forbearance.

How the waivers help borrowers now

So, if this physician takes a full-time PSLF-eligible job with a qualifying employer after residency, they miss out on 33 near “freebies” for PSLF in residency. Fortunately, the waiver automatically counts 12 of them, but what about the other 19?

One could argue that if the cost of those 19 payments would have been $0 to $150, and then when practicing with an income of $300,000, they would be closer to $2,000+ monthly. Every month spent in forbearance essentially cost this physician not only having the loans around for 19 more months, but also to spend $38,000 (19 x $2,000) more dollars needlessly toward their student loans before reaching forgiveness.

The good news is that the 12 months would be caught automatically as consecutive forbearances. The waiver would effectively save this person nearly $24,000 already by accelerating their forgiveness timeline while working for a PSLF-eligible employer.

Getting forgiveness credit if you don’t meet the 12- and 36-month forbearance rule

When the PSLF and IDR Waiver press release from the U.S. Department of Education first came out, prior to the formal information page and then FAQs, a note was included. It said that if you were short of these 12- and 36-month thresholds, you could complain and request to have your months of forbearance counted, regardless of the total count.

This is particularly easy if your servicer at the time recommended enrolling in forbearance: 

“Borrowers who were steered into shorter-term forbearances will be able to seek account review by filing a complaint with the FSA Ombudsman at StudentAid.gov/feedback.”

If you have proof, even better. If not, you might still want to submit the complaint. You might not have met the 12- and 36-month ruling, but you might still have been significantly negatively impacted by not being directed to take the proper actions. 

That’s really the whole point of these waivers — to fix the lack of forgiveness credit that borrower accounts missed out on because their servicers didn’t properly provide other — often better — options for the borrower.

You can also look up whether your state has any PSLF and nonprofit student loan advocacy groups that represent borrowers in these kinds of cases.

What about in-school deferment?

Another thing to look out for is if you’ve needlessly had in-school deferment on any loans that overrode the COVID-19 forbearance status since 3/13/2020. We’re doing a whole separate post on this. 

I’ve seen a lot of people now successfully have more than three years of forgiveness credit added to their accounts since requesting a retroactive removal of in-school deferment.

In-school deferment statuses don't otherwise count under the waivers, and these would be missed time periods. Be careful if attempting to waive deferments prior to the pandemic, as you might only put your loans back into a repayment status for a time when a payment was not due and might be considered in default.

Why people aren’t getting as much forgiveness

In my opinion, the main reason that forgiveness has not been reached by more borrowers already is due to long-standing and repeated shortcomings by the Department of Education (DOE). Additionally, student loan servicers’ inability to clearly and effectively communicate rules on loan forgiveness programs to help borrowers make the best decisions has not helped in the matter. 

With legislators making needlessly complex rules, it leaves the DOE and servicers, such as MOHELA, with the tremendous burden of educating loan borrowers as to what — and what not — to do when it comes to effective, helpful steps within student loan forgiveness programs.

To be clear, this isn’t something I’ve ever imagined as malicious, just out of a lack of necessary funding and due to complexity. Remember, when speaking to your loan lender’s representative when they don’t know what they’re talking about, kindness goes a long way.

Get help maximizing your loan forgiveness credit

If you have a question about your loan and repayment history, schedule time with a consultant. We analyze your repayment status history, including any forbearance or deferment periods, against the terms of these new waivers to help you understand your options and build a strategy that’s best for you.