Why you might get your student loans forgiven now

There is a one-time adjustment happening to certain student loans, but you may have to act fast if you want to qualify.

Student loan repayments are confusing. For starters, there are the different type of loans: Direct Loans, Perkins Loan, Parent PLUS loans, etc. They all have different terms, and some of them are subsidized and some are not.

But then there are the repayment plans. It used to be that you had a single payment plan over a (say) 30 year plan. But then there was an income-based repayment plan, and then after that, an alphabet-soup variety of them (ICR, PAYE, REPAYE, etc.). They even came up with a tool to help you make sense out of it all.

And then, recently, they came out with the new SAVE plan, which I think was designed to be better all the other plans, but just seemed to remind me of the classic XKCD comic:

Source: XKCD

Point being that if you have student loans, and you’re on an income-driven repayment plan (IDR), you can sometimes get them forgiven after 20-25 years of repayment these days. This is counted in months, and when the number of months paid reaches a certain point, your loans go away.

I recently received word that the Department of Education is planning on adjusting upward the number of months that many people have paid of their student loans. This means that these loans will be closer to being forgiven, and in some cases will be forgiven entirely.

Many people won’t need to take any action to get this benefit, but for a few of you, you’ll get your loans forgiven outright.

And maybe, just maybe, you might receive a repayment.

If you think you’re living in crazyland, stay with me.

CFPB to the rescue

The Consumer Financial Protection Bureau, a great organization that is designed to act in the consumer’s best interest (imagine that), sent me an email recently, alerting me about this particular student loan issue:

Can we just talk about how awesome the CFPB is? This government organization went out of their way to alert people that they might be able to benefit financially from an upcoming event, and gave them advanced notice of things they should do to make sure they were eligible.

This is an unalloyed good. And this is why I think you should be suspicious of anyone who wishes to defund or defang the CFPB.

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What’s happening?

Basically, the count of the number of months paid got messed up, and they want to fix this.

So if you’re on an Income-Driven Repayment Plan (IDR), the Department of Education (ED) has been counting your number of payments, against the day when you’ve made the appropriate number of payments and your loan will be forgiven.

But it sounds like they haven’t been counting every month that they should have, and they want to “catch people up”.

To quote studentaid.gov:

More than 3.6 million William D. Ford Federal Direct Loan (Direct Loan) Program borrowers will receive at least three years of credit toward loan forgiveness, and many will see their loans forgiven automatically.

Who’s eligible?

Eligibility is confusing, but the above source is the best source I’ve found for clearly detailing this:

You are eligible if you are:

  • On an income-driven repayment (IDR) plan or were on one in the past
  • In the Public Service Loan Forgiveness (PSLF) program
  • Not currently on an IDR plan, but interested in being on one, while also having Direct or Federal Family Education Loan (FFEL) Program loans held by the U.S. Department of Education.

Not sure if this applies to you? Call the ED at 1-800-433-3243 or go to studentaid.gov.

What do you need to do?

The way I’m reading this is: Get on an IDR plan now.

Also, consolidate your loans if you haven’t already, as it appears like this may have an added benefit to pushing more of your loans into eligibility for “catch-up.

See here, same source as above (emphasis mine):

We encourage borrowers who have commercially managed FFEL, Perkins, or Health Education Assistance Loan (HEAL) Program loans to apply for a Direct Consolidation Loan by April 30, 2024, to get the full benefits of the payment count adjustment.

So that’s your big takeaway here. If you have the relevant loans that can be consolidated, do so, and start the process immediately. Consolidation can have a direct effect into getting your loans forgiven much sooner.

Repeat: Consolidate your loans, and you may owe less money.

What was this about a refund?

You might also get a refund for overpayment.

If you haven’t reached your forgiveness period, this “catch-up” will get you closer to it. If you are close to your forgiveness period, this might put you over the finish line, leading to your loans being forgiven.

And if you have paid more months than you needed to, in “most” cases, you’ll receive a refund for overpayment.

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Imagine that.

Take advantage of this one-time student loan adjustment

The ED is basically saying, “we messed up”, and atoning for it.

I’ve written in the past about how student loan forgiveness programs rely on the generosity and accuracy of the federal government, which isn’t generally something to rely on.

But here, the systems appear to be working in your favor.

So get on an IDR plan, and get a consolidated student loan by April 30, 2024.

Call the ED at 1-800-433-3243 or go to studentaid.gov if you’re not sure whether any of this is relevant to you.

And if you take advantage of this benefit, make sure to thank Elizabeth Warren.

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