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The Income-Driven Repayment (IDR) waiver, a one-time account adjustment, was first introduced in April 2022. This waiver came as an executive action from President Biden to help student loan borrowers who have had past troubles with IDR plans. Typically, for the president to enact changes at this scale, it would need to go through Congress. But, as has been done in the era of the student loan pause, Biden unilaterally has made significant changes to student loans.
In tandem with the IDR waiver, we are on the edge of our seats waiting for the Supreme Court's ruling on the $10,000-$20,000 Student Loan Forgiveness plan, which is expected in June.
The IDR waiver is similar to the PSLF waiver in a number of ways that we will cover, but a key difference is that it impacts a broader group of borrowers instead of those solely in public service. It is estimated that, with the IDR waiver, more than 3.6 million borrowers will receive three-plus years of credit toward loan forgiveness, and some will be eligible for immediate loan forgiveness.
A year after the initial press release, the government finally released a concrete FAQ on how this waiver will be applied to borrowers.
What Does the IDR Waiver Do?
A quick refresher: Income-Driven Repayment (IDR) Programs are payment plans that allow borrowers other options to repay their loans based on income and family size. IDR programs are highly beneficial to residents, who usually can't afford to make the standard payment on their student loans. With payments based on a percentage of discretionary income, the monthly amount due may be as low as $0 but is more likely in the $100-$400 range. IDR programs include Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE).
The IDR waiver is a one-time account adjustment that will be made to federal student loan borrowers to help them move closer to (or to receive) student loan forgiveness. You must have at least one direct federal student loan or Family Federal Education Loan (FFEL) held by the Department of Education (ED) to qualify.
Typically, a borrower interested in a federal loan forgiveness program would need to be enrolled in an IDR plan and make payments to receive credit toward a program. However, under the IDR waiver, the government will also count these periods of time as credit.
- Forbearances of 12 consecutive months or longer OR more than 36 months in total.
- Any months in repayment, regardless of the payments made, loan type, or repayment plan.
- Any month in deferment prior to 2013, excluding in-school deferment.
- Any month in economic hardship deferment on or after January 1, 2013.
- Any time in repayment prior to consolidation.
If you have a forbearance shorter than mentioned above, contact the student loan ombudsman to review your situation.
This means if you put your loans into forbearance for three years during training, you could be eligible to receive three years of payment credit to taxable (20-25 years) and PSLF forgiveness.
The IDR waiver will apply to borrowers in PSLF and taxable forgiveness. You will be eligible for loan history back to October 2007 for PSLF and July 1994 for taxable forgiveness. If, after the account adjustment, you are beyond your forgiveness milestone, you might be eligible to receive a refund for overpayments.
Please note: if you are interested in PSLF, you need to make sure you are current on your employment certification forms. The PSLF program has a tracker on MOHELA. Taxable forgiveness has yet to roll out an official tracker. You can review your payment history by looking at your student loan NSLDS file on studentaid.gov.
More information here:
Consolidating Loans with the IDR Waiver
In the past, consolidation was a big mistake for many if you had been out of school for years. Consolidation usually erases all previous repayment history, as it pays off the loans you include in the consolidation and issues you a brand-new loan in its place with a new interest rate and repayment plan. If you’re starting residency in the fall of 2023, you should consider consolidation and enter repayment right as you begin your intern year.
Under the IDR waiver, you can carry over payments that were made pre-consolidation. And, more importantly, the loan with the longest repayment history will be applied to all the loans included in the consolidation.
Let’s say you started borrowing in 2007 for undergrad, and you recently borrowed for graduate school in 2020. Before you borrowed for graduate school, you worked for eight years at a nonprofit and made payments in an IDR plan. If you consolidate those loans together, they will take the payment history for the loan borrowed back in 2007 and apply it to your graduate loans. This borrower would only need to make two more years of payments to reach PSLF and have all of their federal student loans forgiven. Those graduate loans will receive extra credit due to those earlier undergrad loans.
This regulation can be a game-changer for those borrowers with older student loans and a previous repayment history.
The IDR Waiver vs. the PSLF Waiver
The IDR and PSLF waivers have benefitted many borrowers on their track to loan forgiveness. The PSLF waiver lasted from October 2021-October 2022. The IDR waiver time frame is April 2022-December 2023.
There are a few similarities and differences you need to be aware of in comparing the IDR and PSLF waivers.
- Any months in repayment—regardless of the payments made, loan type, or repayment plan—would count as forgiveness credit. The slight difference with the PSLF program is that it counted payments made back to October 2007 going forward while the IDR waiver will count payments all the way back to July 1994.
- Certain deferment and forbearances will count as months in repayment.
- When you consolidate student loans with different payment histories, the loan with the longest repayment history will be applied to all the loans.
- Under the PSLF waiver, you no longer needed to be employed full-time at a non-profit/501(c)(3) at the time of forgiveness. That means you could have a decade of previous employment at a nonprofit and be working at a private enterprise and still have your loans forgiven via PSLF. This is not the case with the IDR waiver for borrowers interested in PSLF. At the time of forgiveness, you still need to be working at a qualifying employer.
- The PSLF waiver was narrower in scope, only impacting those in public service. The IDR waiver can impact all federal borrowers.
More information here:
Fresh Start Initiative and IDR waiver
If you are in default or if you were previously, you have limited options to resume good standing with your servicer. You can consolidate, rehabilitate, or pay off your student loans. Time in default does not count toward loan forgiveness, and it hurts your credit.
However, the Fresh Start initiative can also qualify for the one-time adjustment and can give you forgiveness credit for time in default back to when the loan moratorium began in March 2020. Eligible loans are:
- Defaulted direct federal student loans (prior to March 2020)
- Defaulted FFEL loans (prior to March 2020)
- Defaulted Perkins loans held by ED
IDR Waiver Q&A
How Do I Apply for the IDR Waiver?
If you would like to apply for the waiver and you have commercially held FFEL loans, consolidate your federal student loans. Those with direct federal student loans and FFEL loans held by the ED will have their accounts automatically updated. If you were required to make payments during the student loan pause, you have commercially held FFEL loans.
Who Needs to Take Action?
Many borrowers will have their loans automatically updated by the IDR waiver. However, there are some borrowers who need to take immediate action.
Borrowers with commercially held FFEL, Perkins, or Health Education Assistance Loan (HEAL) program loans need to consolidate their student loans before the end of 2023 to qualify. There could be future lawsuits that will try to block this waiver, so don't delay consolidation until the end of the year if you plan on applying.
Borrowers with direct federal student loans or FFEL loans held by the ED don’t have to consolidate their student loans to qualify. However, if you have FFEL loans held by the ED and you are planning on PSLF, you should consolidate your federal student loans.
Who Should Not Take Action?
Borrowers who have low payments to start with and who have had a significant increase in income may not need to consolidate. When you consolidate, you are required to submit a recent tax return or a paystub which can increase your monthly payments if your income has increased. Many have not certified their income since 2020. Payments would still be based on that certification unless you’ve certified after. Six months after payments resume, servicers will begin requesting you to recertify your income. So, by the middle of 2024, you should expect an increase in monthly payments. If consolidation causes your monthly payment to jump, you might be better off not consolidating to keep lower payments for longer.
In addition, if you are making more than you owe and you consolidate your student loans, you might not be able to enroll in the IBR or PAYE program. Both of these programs require a partial financial hardship to enter them. That basically means you need to enter them before you make more than you owe. If you are ineligible for PAYE or IBR post-consolidation, you can select REPAYE or ICR as an alternative. But payments in these IDR plans can be more costly. So, be sure you take this into account before you consolidate.
When Will My Student Loans Be Updated?
The account adjustment will depend on if you reach your forgiveness milestone by August 1, 2023.
If you reach forgiveness prior to that date, you should receive an update prior to August 1. If you reach forgiveness beyond that date, the update will be coming later.
When Is the Deadline to Apply for the IDR Waiver?
The IDR waiver was set to expire May 1, 2023. However, the deadline was recently pushed back until the end of 2023. I don’t recommend waiting until then to apply. If you need to take action to qualify for the IDR waiver, I would do it now. This waiver, among other student loan initiatives by the Biden administration, could come under legal scrutiny and end prior to the current deadline.
The IDR waiver could help you move closer to receiving forgiveness. At StudentLoanAdvice.com, I've personally helped a number of white coat investors navigate and succeed with the IDR waiver, resulting in forgiveness or moving closer to the end of their student loans. If you need help interpreting these changes for your personal situation, set up a time with one of our student loan experts. We will help you maximize the rules to get the best deal on your student loans.
Has the Income Driven Repayment waiver impacted your student loans? Are you planning on consolidating your loans? Does this waiver change your student loan plan at all? Comment below!