The Biden administration’s student loan forgiveness plan might have run up against a wall, but you might still be eligible for loan forgiveness under the Income Driven Repayment reforms that are being enacted this year.
Among the reforms are rules to no longer allow student loan issuers to amortize unpaid interest on Income Based Repayment plans that have very low or no monthly payments and increasing your overall balance. They’ll also cap the percentage of discretionary income you’ll have to pay toward your loan at five percent, lowering student loan payments all around.
Time that your loan spent enrolled in an IDR program with a zero dollar monthly payment counts toward the 10 or 20 year term.
One of the most significant changes the IDR reforms are bringing about is shortening the amount of time your federal student loans have to be in repayment before they’re eligible to be forgiven. Whereas under President Trump loans had to be in repayment for 25 years before the remaining amount could be forgiven, under Biden the term is 20 years for loans with balances above $12,000 — and only 10 years for loans with a balance under $12,000. Not only that, but time that your loan spent enrolled in an IDR program with a zero dollar monthly payment counts toward that 10 or 20 years.
You have until May 1, 2023 to convert it to a direct federal consolidation loan in order to be eligible for the shortened loan forgiveness term.
Of course, there’s a catch. Your loan is only eligible for forgiveness under the IDR reforms if it’s a federally held direct loan. Privately held loans, including FFELP loans, aren’t eligible. But there’s still good news! If your loan is ineligible, you have until May 1, 2023 to convert it to a direct federal consolidation loan in order to be eligible for the shortened loan forgiveness term.
Not sure what kind of loan you have? You can find out by contacting your loan servicer, or by signing into your dashboard at StudentAid.gov and viewing the breakdown of your loans. If you need to, you can also apply for a direct consolidation loan while you’re logged in.
That may not be the only catch, however. Historically, discharged student loans carried income tax liability and could result in a huge tax bill. While Biden’s American Rescue Act temporarily made all student loan forgiveness, including forgiveness under the IDR program, ineligible for taxation, a sunset clause in the bill means this tax exemption will expire at the end of 2025. So if you won’t be eligible for forgiveness before then, you might have to pay taxes on any amount that ends up being forgiven under this plan.
While Biden’s halted student loan forgiveness plan understandably met with strong reactions on both sides, the IDR reform is still underway and is long overdue. Whether you met the obstruction of blanket loan forgiveness with cheers, jeers or tears, if paying your student loans is a struggle, you might find that repayment under the new IDR program is less of a burden and easier to manage.
And as long as you’ve got the right type of loan, if you still can’t make payments, you can look forward to the relief of loan forgiveness in time.