IDR Account Adjustment

Student loan debt relief With the flurry of various student loan forgiveness programs announced, one program that has flown under the radar screen will be ending soon.  It is called the IDR Account Adjustment and was announced on April 19, 2022.  It is part of the Department of Education (DOE) update to the various Income-Driven Repayment (IDR) Methods.

These programs focused on correcting many of the errors or issues that borrowers faced trying to qualify for Public Service Loan Forgiveness (PSLF) and other student loan forgiveness programs.  The most successful program has been the PSLF Limited Waiver which has helped over 370,000 borrowers get forgiveness.  That program registration is now closed but some borrowers’ applications are still being processed.

The IDR Account Adjustment program helps some of the same people who missed the PSLF Limited Waiver deadline and other borrowers who did not qualify for PSLF.  The net is a little bigger but the rules are more confusing.  Listed below are some rules and a description of the two primary groups that qualify for the IDR Account Adjustment.

Upcoming May 1, 2023 Deadline

According to the program rules, the consolidation of FFEL loans needs to be submitted by May 1, 2023.  Under IDR Account Adjustment Program only Federal Direct loans qualify for loan forgiveness.  This was one of the major reasons for PSLF’s denial.  Most FFEL loans are not owned by the federal government and hence cannot be forgiven.

Typically, when a FFEL loan is consolidated the payment month credits restart.  Under the IDR Account Adjustment program, this does not occur.  Prior payments made under the other repayment methods will count toward the loan forgiveness the borrower is pursuing. .  This was one of the major reasons for the PSLF Limited Waiver’s success.

Repayment Method and Number of Payment Credit Review

Two other common errors caused the majority of loan forgiveness denials.  The first reason was being enrolled in the wrong repayment method.  As the IDR programs were announced and implemented the loan servicers’ advice was not always correct and many borrowers thought they were on track for loan forgiveness based on incorrect repayment advice.  Under the IDR Account Adjustment, all repayment methods will count as a payment month.  Even some months of forbearance will count depending on the type of forbearance.  This will be done under the DOE review.

Maybe the most confusing part is the loan forgiveness will include payments made before the IDR forgiveness origination date.  As an example, a person can get payment credits for IDR months even though the specific IDR method was not available until after 2007.  These borrowers do not need to qualify for PSLF forgiveness because of the employment requirement. This would include anyone who has been in repayment for approximately 20 years.  Under this program, you qualify for loan forgiveness.

PSLF Limited Waiver Borrower Who Missed the Deadline

The rules of the IDR one-time Account Adjustment are the same as the PSLF Limited Waiver.  So if you missed the original deadline, you are in luck.  The only difference is you still need to be working for a PSLF-qualified employer to qualify.

The borrower will still need to have Direct Federal Loans and have the proper employment history to qualify.  It will help some to maximize prior credits who had the right employment but were in the wrong repayment method.  If you added that to the National Forbearance free credit months, it may move them closer to PSLF sooner.

The DOE estimated about 550,000 borrowers should have qualified for PSLF Limited Waiver forgiveness.  That means there is still over 150,000 borrower who may qualify for this program.  Our average saving per client was just over $120,000.

Student Loan Forgiveness for Borrowers over 40 and Maybe Tax-Free 

The IDR Account Adjustment can also help the borrower who has been in repayment for over 20 years.  The biggest advantage is it does not require the specific employment rules as PSLF.  Under the IDR One-Time Account Adjustment, people who have been long-time student loan repayers can qualify for loan forgiveness under this program.

For some, it may get better.  Under the CARES Act, all student loan forgiveness through 12/31/2025 is federally tax-free.  Most non-PSLF loan forgiveness is recognized as income in the year it is forgiven and would be included as ordinary income in the tax year that it is forgiven.

This program will be limited to a very specific group of borrowers since they will need to confirm they have Federal Direct Loans or have consolidated their FFEL loan to Direct.  The issue they will face is the selection of the IDR repayment method during the consolidation.  They will be limited to only certain IDR methods due to loan date and IDR repayment availability.  Due to the IDR rules, most of these borrowers would have Graduate school loans which require a 25-year repayment term for forgiveness.

IDR Account Adjustment Summary

The IDR Account Adjustment Program is another step in the right direction to help borrowers with student loan forgiveness and debt relief.  As many of the programs become more targeted it helps fewer borrowers but you need to evaluate your options.

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