How Biden’s Huge Changes to Income-Driven Repayment Benefits Borrowers Seeking PSLF

Last month, the Biden administration announced massive, historic fixes to income-driven repayment (IDR) programs for federal student loan borrowers. According to the Department of Education, these changes will result in millions of borrowers advancing their progress towards eventual student loan forgiveness.

The changes to IDR programs will also benefit borrowers on track for Public Service Loan Forgiveness (PSLF), given the longstanding interrelationship between IDR and PSLF.

While many questions about the changes remain unanswered, the Department estimates that tens of thousands of public service borrowers will see near-immediate student loan forgiveness.

How IDR and PSLF worked before

Income-driven repayment (IDR) is a broad term that describes a number of individual repayment plans, each of which is tied to a borrower's income. IDR includes Income Contingent Repayment (ICR), Income Based Repayment (IBR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE).

While each IDR plan is unique, they all function pretty similarly at a fundamental level. IDR plans utilize a formula based on the borrower's income — typically, it starts with their Adjusted Gross Income (AGI) from their federal tax return. Then, it's adjusted for family size, with a certain amount of initial income excluded under the plan’s poverty exemption (which ranges from 100% to 150% of the federal poverty limit).

An IDR payment lasts for up to 12 months, at which point a borrower must renew the plan by submitting updated income information — a process called recertification.

After 20 or 25 years of payments under an IDR plan (depending on the specific plan), any remaining student loan balance can be forgiven, regardless of the borrower’s profession (although this could be treated as taxable income to the borrower). Only payments made under an IDR plan can count towards this loan forgiveness period. Periods of repayment under other plans and periods of nonpayment (such as deferments and forbearances) do not count.

In addition, loan consolidation restarts the clock on a borrower’s repayment term, so payments made prior to consolidation also do not count. Historically, this was the case for Public Service Loan Forgiveness (PSLF), as well.

Importantly, IDR plans have also been a key feature of the PSLF program. PSLF can wipe out the federal student loan debt for Direct federal student loan borrowers who spend at least ten years working full-time for a qualifying nonprofit or government employer. But under the original program framework, only payments made under an IDR plan or the 10-year Standard plan could count towards PSLF.

Related: Your Guide to Federal Loan Repayment Plans That Qualify for PSLF

Biden’s new Limited PSLF Waiver program

Last October 2021, the Biden administration enacted the Limited PSLF Waiver program. Billed as a historic fix to PSLF — which has been hampered by mismanagement, poor oversight and abysmal approval rates that never got much higher than 2% of applicants — the waiver allows the Education Department to count periods of repayment towards loan forgiveness that normally would not qualify under the original PSLF rules, including the following:

• Payments made under any repayment plan, including non-IDR plans.
• Payments that were made too early or too late, or not in full.
• Payments made on FFEL loans and federal Perkins loans, provided the borrower consolidates those loans into the federal Direct consolidation loan program.
• Payments made prior to loan consolidation.

Although the waiver expired in October 2022, it allowed the Department of Education to retroactively count payments towards PSLF as far back as October 2007, when the program was first enacted (but not before that).

The Department indicated last month that it has already approved $6.8 billion in student loan forgiveness for more than 113,000 borrowers under the Limited PSLF Waiver program, with potentially hundreds of thousands of additional borrowers advancing their progress towards loan forgiveness.

But importantly, the PSLF waiver program did not address deferment and forbearance periods, which would still not count towards loan forgiveness.

Biden’s changes to Income-Driven Repayment will benefit borrowers on track for PSLF

The IDR adjustment announced by the Biden administration last month addresses some of the shortcomings of the Limited PSLF Waiver by allowing specific periods of deferment and forbearance to be counted towards IDR and, in turn, towards PSLF. This may have significant benefits for borrowers who work in public service jobs.

In addition to counting any period of repayment towards IDR loan forgiveness (similar to the Limited PSLF Waiver), under the IDR adjustment, the Department of Education will be able to count certain periods of nonpayment towards IDR and PSLF, as well. According to the Department, this includes 12 or more prior months of consecutive forbearance, or 36 or more months of cumulative forbearance, as well as any prior months spent in deferment (with the exception of in-school deferment) before 2013.

The Department will also consider, on a case-by-case basis, shorter periods of forbearance. However, borrowers would need to submit individualized complaints to the Department of Education’s FSA Feedback System or Ombudsman Group.

FSA officials will be looking for allegations and evidence that a borrower was subjected to forbearance-steering by their loan servicer — for example, if a loan servicer told a borrower to go into forbearance if they were having trouble making their payment, without informing them of an income-driven repayment plan option.

However, it is unclear whether the Department will be able to count deferment and forbearance periods before loan consolidation. The Department has only said that “any time in repayment prior to consolidation on consolidated loans” can be counted under the IDR adjustment. FSA officials have not yet clarified whether that includes pre-consolidation periods of deferment and forbearance.

Nevertheless, since certain deferment and forbearance periods can now count, the IDR changes are expected to directly benefit many borrowers who are on track for PSLF.

“Federal Student Aid (FSA) estimates that these changes will result in immediate debt cancellation for at least 40,000 borrowers under the Public Service Loan Forgiveness (PSLF) Program,” said the Department in a press release in April.

The IDR adjustments will be implemented automatically by FSA officials over the course of the next several months. The Department does not anticipate completing the adjustments until January 2023 at the earliest. In the meantime, borrowers can learn more about the new IDR adjustments here.