A Guide to Federal Student Loan Forgiveness

A Guide to Federal Student Loan Forgiveness ...

By Becca Craig, CFP

With two significant announcements, the Biden Administration has completely transformed the fabric of federal student loan forgiveness: the Public Service Loan Forgiveness Waiver and the recent modifications to income-driven repayment (IDR). These relatively complex and piecemeal measures should be welcomed as a result of the recent changes.

Becca Craig

After the Department of Education announced the sixth extension of the student loan payment freeze in April, many borrowers were shocked and disappointed. However, the same borrowers might be asking some very important questions: what exactly are these forgiveness programs, how do they impact me, and what measures must be taken to ensure the full benefit of such proposals? If you''re ready for some questions, let''s dive in.

The Department of Education has become well-accredited with the relentless (yet warranted) criticism of its failure to adequately manage and administer the PSLF program. They released a limited PSLF waiver on October 6, 2021, which temporarily credits borrowers for previous periods of repayment that would otherwise not qualify for the program. Upon completion of the changes, the ED will then count additional qualifying payments once deemed excluded based on the type of loan (FFEL or Perkins) or extended payment plan (standard, etc.)

Borrowers should note that the qualifying employment requirement has not been altered, and they should confirm their employer''s qualifying status by filling the PSLF form with the PSLF Help Tool.

The Nitty-Gritty Factors

Temporarily permitted are loan types and amounts that were previously unavailable:

  • The limited waiver allows for all payments made on all federal loan types while working for qualifying employers to count, e.g., Federal Family Education Loans (FFEL), Perkins or other federal student loans. Payments will count for disbursements made towards previously consolidated ineligible loans (with the exception of jointly owned FFEL loans).
  • Any payment made while working for a qualifying employer will count, even late payments. The only periods that dont count are periods of deferment (of less than 12 months), forbearance or default.
  • Grad Plus and Parent Plus loans are also included in the waiver.

  • Borrowers who have already completed 120 payments under the limited waiver are not required to continue to work in the public interest while awaiting loan forgiveness.

A waiver for Grad Plus and Parent Plus loans is also included.

Borrowers who have already paid 120 payments under the limitations are not required to continue to work in the public interest while waiting for loan forgiveness.

The waiver for Grad Plus and Parent Plus loans is also included.

Borrowers who have already paid 120 payments under the limited obligation are not required to continue to work in the public interest while awaiting loan forgiveness.

All repayment plans are listed in detail.

  • The limited waiver provides credit to borrowers for payments made under any repayment plan, provided the borrower was working full-time (30 hours/week) for a qualifying employer.
  • This waiver applies whether a borrower repaid federal loans through graduated repayment, extended repayment, consolidated repayment, standard repayment or any of the other plethora of options.

Key Points to Watch

Consolidate non-eligible loans:

  • Federal loans that are ineligible for PSLF must be consolidated into a Direct Loan by October 31, 2022, to receive credit under the limited waiver. FFEL, Perkins or other previously ineligible federal loans must be included in a direct consolidation to get credit.
  • Borrowers can complete a direct consolidation of one ineligible loan to a Direct Loan. You do not have to combine two loans for the consolidation to count.

Submit an employment certification form (ECF) or PSLF form:

If you currently or at any point worked for a qualifying employer but did not certified your employment either because of ineligible loan types or an ineligible repayment plan, you must then submit a PSLF form to FedLoan Servicing for all periods of qualifying employment.

  • You are a part of this group if you have only Direct Loans but are not assigned to FedLoan Servicing or if you are assigned to FedLoan Servicing and have never submitted a form for the PSLF Program. You cant get credit under these flexible rules unless you file a PSLF form by October 31, 2022.

Verificate your PSLF count:

  • If you have only Direct Loans and all of them are assigned to FedLoan Servicing, youve most likely submitted an Employment Certification or a PSLF form. Automatic credit will be granted only if the employer listed on your form was determined to be a qualifying employer.
  • If you worked full time for a qualifying employer from 20082010 but did not submit a form because you had not yet consolidated your loans, youll still need to submit a PSLF form to get credit for those payments.
  • If youre not sure why your prior payments were denied, check your account details online at or fill out a new PSLF form. You can also request a written payment history from FedLoan if your eligible or qualified payment count is incorrect.

On April 19, 2022, the Biden administration announced a massive IDR waiver program similar to the PSLF waiver program. According to the ED, this effort will result in automatic debt cancellation for at least 40,000 borrowers under the PSLF and several thousand borrowers under the IDR. More than 3.6 million borrowers will receive at least three years of additional credit toward forgiveness under the IDR.

All forgiveness granted between now and January 1, 2026, will be forgiven income tax-free, whereas the total loan amount forgiven under IDR would otherwise have been included in a borrower''s adjusted gross income. This means that an estimated 10-15% of current loan holders will be granted either immediate or eventual tax-free forgiveness under the revised guidelines for IDR plan forgiveness.

The Nitty-Gritty Facts

The changes announced by the ED are intended to help lenders gain control of their income-driven repayment plans after either 20 or 25 years of repayment. It applies to borrowers who pursue 20 or 25-year IDR programs as well as those who pursue PSLF. Obligation a borrower gets credit for this forgiveness based on their current Income-driven repayment plan.

Payments will be counted before a merger. Additional loan counts will also benefit parent PLUS Loans and FFEL once they have been consolidated. Consolidations must take place before January 1, 2023.

IDR eligible lenders are eligible for a one-time payment count change:

  • As part of this initiative, ED will conduct a one-time revision of IDR-qualifying payments for all Federal Direct Loan Program and federally managed FFEL program loans.
  • ED will conduct a one-time account adjustment to borrower accounts that will count time toward IDR forgiveness, including:- Any months in which a borrower had time in a repayment status, regardless of the payments made, loan type or repayment plan. - Twelve or more months of consecutive forbearance or 36 or more months of cumulative forbearance toward IDR and PSLF forgiveness.- Months spent in deferment (with the exception of in-school deferment) prior to 2013.- Any time in repayment prior to consolidation on consolidated loans.
  • Any borrower with loans that have accumulated time in repayment of at least 20 or 25 years will see automatic forgiveness, even if they are not currently on an IDR plan.
  • If a borrower made qualifying payments that exceed forgiveness thresholds of 20 or 25 years, they will receive a refund for their overpayment.
  • 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.

Permanent improvements to IDR payment counting

  • In addition to issuing new guidance to student loan servicers to ensure accurate and uniform payment counting practices, ED will track payment counts in their own modernized data systems.
  • In 2023, FSA will begin displaying IDR payment counts on StudentAid.gov so borrowers can view their progress after logging into their accounts.

Effects on PSLF applicants:

  • If a borrower has applied or will apply for PSLF, these changes may have an impact by increasing their qualifying payment count.
  • If a borrower has 12 or more months of consecutive forbearance or 36 or more months of cumulative forbearance, they will receive PSLF credit for those periods of time if they certify qualifying employment.

A few things to keep an eye on is the following:

While there is no immediate action at this time (owing to a lack of clarification from the ED), borrowers may take additional steps in the near future. If borrowers do not want to wait until 2023 for their payment history to be displayed, they may request a written payment history from the loan servicer. Depending on the loan provider, they may be able to see the majority of their history already displayed online.

If you are attempting to prepare for IDR''s forgiveness or have already received 20 or 25 years of student loan payments, please take a moment to remember this fact.

Knowledge is a power.

By adopting a piecemeal approach, the Biden administration has expanded its existing loan forgiveness programs two-fold. Borrowers may enthuse themselves and their student loan forgiveness strategy by staying informed, being vigilant, and taking action. However, this new legislation lays many limitations. Schedule a brief consultation with us today.

About the author: Becca Craig, CFP, CSLP, ABA

Becca Craig, a Buckingham Associate Wealth Advisor, has a passion for effective client portfolios, advanced planning, and projects that make up an exceptional, comprehensive wealth management strategy. Besides, Becca''s knowledge of student loan repayment planning allows her to assist clients understand their loans and then create a strategy that focuses on full repayment or forgiveness.

Certain information is based on third-party information that may be outdated or otherwise superseded without notice. We are not liable for any information, opinions, advice, or services offered on or through these sites. The Buckingham Strategic Wealth, however, is not responsible or liable for this content.

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