Finance

Department of Education announces major revisions to IDR payment counting

On April 19, one day before the release of a highly critical performance audit by the U.S. Government Accountability Office, the Department of Education (ED) announced a series of actions it is taking to “address[] historical failures in the administration of the federal student loan programs.”  The actions are directed at income-driven repayment (IDR) plans, which are used by student borrowers on over half of the more than $1 trillion in outstanding federal student Direct Loans.  IDR plans allow borrowers to make lower monthly payments over an extended term of 20 to 25 years of repayment, after which borrowers become eligible for forgiveness of their remaining loan balance.  Some of these changes will also impact borrowers applying for Public Service Loan Forgiveness (PSLF).

These actions, which Federal Student Aid (FSA) will begin implementing immediately, consist of the following:

  • FSA will conduct a one-time account adjustment that will count forbearances of more than 12 consecutive months and 36 months cumulative toward forgiveness under IDR and PSLF.
  • FSA will end its longstanding practice of allowing servicers to enroll borrowers in forbearance by text or email, and will also conduct an “external review” of servicer patterns and practices relating to forbearance use, including in partnership with the CFPB.
  • FSA will conduct a one-time revision of IDR-qualifying payments for Direct Loans and federally-managed Federal Family Education Program (FFEL) loans.  Any months in which borrowers made payments will count toward IDR, regardless of payment plan, as will pre-consolidation payments and months in deferment prior to 2013.  Any borrower who has made the required number of payments for IDR forgiveness based on the payment-count revision will receive loan cancellation automatically.
  • FSA will issue new guidance to servicers to ensure accurate and uniform payment counting practices, and will track payment counts in its own data systems.  In 2023, FSA will begin displaying IDR payment counts on its StudentAid.gov website.  ED also plans to revise the terms of IDR through rulemaking to further simplify payment counting by allowing more than one loan status to count toward IDR forgiveness, including certain types of deferments and forbearances.

In response to ED’s announcement, the Education Finance Council, the National Council of Higher Education Resources, and the Student Loan Servicing Alliance issued a press release in which they called the announcement “another quick fix, band-aid approach to complex programmatic issues within the federal student loan program that have not been addressed by FSA in collaboration with its partners to ensure the best interest of borrowers are kept in focus.”  The groups also noted that the announcement represented “another substantive shift in policy by the Department of Education not shared with any advance discussion with servicers who will again be put into the position of being unable to provide clear and concise information to, or address questions  from, borrowers or have advance planning for implementation.”

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