The other week there was big news in the student loan world. The Biden Administration announced a new Income Driven Repayment (”IDR”) Wavier program.
While not the big one-time forgiveness many had hoped for, it IS a big change that will expand and accelerate student loan forgiveness for many borrowers.
AND if you missed it - the Federal Student Loan payment pause has been extended through the end of August (with many talking heads expecting it will be extended again until the end of the year).
What Forgiveness Program Applies to You?!
Student loans are confusing. Student loan forgiveness programs are confusing. It’s all confusing and easy to get lost. So let’s review.
Public Service Loan Forgiveness (PSLF)
As I’ve written about previously, the Biden Administration has made BIG changes to the Public Service Loan Forgiveness program. That’s PSLF for short.
PSLF applies if you’re working in government or for a non-profit (such as an agency). If you’re working in private practice, PSLF doesn’t apply to you (unless you’ve previously worked ten or so years for the government or non-profit).
If you think PSLF might apply to you, check out that link above and read up on the actions you need to take before the end of October.
Loan Forgiveness for Everyone Else
If you’re working in private practice (and didn’t work ten-ish years in government or for a non-profit), PSLF isn’t going to help you much.
We’ve been waiting and hoping for the Biden administration to announce a big $10,000 or maybe even $50,000 immediate forgiveness. They haven’t done that. And I suspect they won’t (but you never know...).
But what we got this week is a pretty big step - and it will get many borrowers MUCH closer to forgiveness (with some achieving more-or-less immediate forgiveness).
Let’s review what’s happened and if it applies to you.
When it comes to Federal Student Loans, you can either pay off your loan yourself or go for forgiveness. If PSLF doesn’t apply, there is still longer-term (20 or 25 year) forgiveness.
Which payoff strategy is better for you? If your student loan balances are more than your annual income, chances are this longer-term forgiveness is within your reach. If your student loan balance is less than your annual income, chances are forgiveness won’t benefit you much (and you should focus on paying off the loans yourself). You can read more about this important “student loan debt-to-income ratio” here.
Forgiveness of any kind is great - but it historically has required jumping through so many hoops and getting so many confusing details right, that many borrowers were left out in the cold.
Earlier this year, the Biden Administration fixed a lot of that for PSLF through the PSLF limited wavier.
This week, they announced that they’re doing the same for everyone else. They introduced a new IDR Waiver program. (Borrowers pursuing PSLF will also get some additional benefits from this new waiver.)
This new IDR Waiver works by getting borrowers closer to that longer 20 or 25 year forgiveness. It does that by dramatically expanding what time periods count toward that 20 or 25 year target. The waiver won’t grant immediate forgiveness unless you’ve had your student loans for more than 20 years.
The Department of Education will be announcing more details soon, but here are the highlights. The IDR Waiver will expand the time periods counted toward 20 or 25 year forgiveness in the following ways.
- Periods of forbearance normally don’t count toward longer-term forgiveness (20-25 years) but under the IDR Waiver many periods of forbearance WILL count.
- It used to be that only payments made on an IDR plan counted toward longer-term forgiveness. But under the IDR Waiver, repayment made on ANY repayment plan count.
- Consolidating your student loans used to reset the clock on longer-term forgiveness. But under the IDR Waiver, any payment on any repayment plan prior to the consolidation will count.
So you get credit for more - potentially a lot more - toward the 20 or 25 years. If you’re a bit unclear about how this longer-term forgiveness works, check out this blog post. Each IDR program explained in that post grants forgiveness after 20 or 25 years - each IDR program is different.
Ready to stop worrying about money?!
7 Money Mindset Shifts to Reduce Financial Anxiety
I realize this announcement might sound just like a lot more confusing detail - and it is. But it is a big deal. These details will help a lot of borrowers get to forgiveness more quickly. And even if you haven’t had your student loans for anywhere close to 20 years, this change still will help you reach forgiveness sooner. You may want to revisit your loan payoff strategy as a result!
The bottom line for student loan borrowers
If you have Federal Student Loans, now is the time to be paying attention and taking action.
Some of the recent student loan reforms will happen automatically.
But many of the new benefits require you to take action before upcoming deadlines.
I know your student loans may feel overwhelming. I totally understand how you might just want to push them away and not think about them at all.
But PLEASE don’t ignore your student loans right now. Your future self will thank you!!!
That's a Wrap 🎬
That's it for this today's post. I know we covered a lot and yet it is but one small part of navigating the entirety of your financial life.
If this all feels a bit much, give me a shout. I work one-on-one with therapists from all over the country helping them address issues just like the ones we talked about today! Learn the different ways you might work with me on my services page.
Turning Point is a registered investment advisor in the state of California. Please visit turningpointhq.com for important information and additional disclosures. This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes financial, legal or tax advice; a recommendation for purchase or sale of any security; or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Read the full Disclaimer here.