Proposed Income-Driven Repayment Waiver Could Grant Debt Forgiveness to Millions

The proposal submitted to the Department of Education would retroactively count all time under an IDR plan toward forgiveness, even months under default or in forbearance.
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  • The proposed income-driven repayment plan resembles a public service loan forgiveness waiver put in place last year.
  • Advocates say IDR's current state makes it difficult to qualify for debt forgiveness.
  • After 25 years, only a few dozen borrowers have qualified for forgiveness.

A plan put forth by student borrower advocates could immediately forgive millions of U.S. borrowers' student loan debt.

A coalition of advocacy groups released a temporary waiver proposal intended for the Department of Education (ED) to implement for Americans on income-driven repayment (IDR) plans. The proposal suggests retroactively counting all time spent on an IDR plan toward the time for forgiveness. The IDR waiver would apply to all borrowers, no matter what type of student loan they have.

The advocacy group coalition includes the Student Borrower Protection Center, Center for Responsible Lending, and National Consumer Law Center.

This proposal is similar in purpose to a temporary waiver President Joe Biden's administration enacted last year for those seeking debt relief through the public service loan forgiveness (PSLF) program. The Student Borrower Protection Center helped craft the language for the waiver.

The PSLF waiver, put in place in October 2021, has already granted debt forgiveness to thousands of Americans working for government agencies or nonprofits. ED Secretary Miguel Cardona claimed that more than 30,000 borrowers would benefit from the waiver, and ED would forgive an estimated $2 billion in outstanding loans. The department is still in the process of granting forgiveness for qualifying borrowers.

Here’s What’s Included in The Proposed IDR Waiver

The federal government has four similar plans that allow borrowers to pay off their student debt through monthly installments based on income and other factors. These plans award debt forgiveness to those who make 20-25 years of qualifying payments, depending on their specific plan.

This proposed IDR waiver makes three specific changes aimed to expedite debt forgiveness.

First, the advocacy groups ask that ED retroactively count all months spent on an IDR plan toward the time for forgiveness. This includes times on forbearance and in default on a loan, no matter what type of IDR plan the borrower was on. The proposed plan would also count all time spent in repayment, even if a borrower had not yet joined an IDR plan.

Second, the proposal asks that relief be granted automatically. The groups state in the proposal that all the information ED needs to grant relief through this waiver is available through the National Student Loan Data System, so forcing borrowers to apply manually would further complicate forgiveness.

Third, the groups request that this IDR waiver apply to all federal loan borrowers, no matter the type of loan. Currently, Federal Family Education Loans and Perkins borrowers must have consolidated their loans in order to join an IDR plan, and only payments made after consolidation count toward forgiveness. This proposal would retroactively change that.

Without Changes, IDR Issues Unlikely to Improve

IDR plans were first implemented in 1995, meaning borrowers could have begun seeking loan forgiveness as soon as 2016, according to the proposal.

However, the National Consumer Law Center found that as of March 2021, only 32 borrowers had qualified for forgiveness. That's despite data showing that approximately 4.4 million federal loan borrowers had been in repayment for more than 20 years, according to the Student Borrower Protection Center.

The advocacy groups give several reasons for the low forgiveness rates, including forbearance steering, poor advice from loan servicers, and administrative hurdles.

One of those hurdles is the need to re-enroll in the IDR program each year. Sara Partridge, research fellow at the Thurgood Marshall College Fund, told BestColleges the need to recertify each year to verify income is a common reason many borrowers fall off track with IDR.

By counting all time since the start of repayment toward the timeline for forgiveness, that issue can be retroactively circumvented, she said.

"It would be a hugely beneficial step toward rectifying some of the administrative issues that have buried low-income borrowers in debt and adversely impacted their financial lives," Partridge said.

She added that this may be the first of many efforts to reform IDR programs in 2022.

Without a fix, problems aren't likely to get better, according to a report from the Student Borrower Protection Center. Based on estimates from loan servicer Pennsylvania Higher Education Assistance Agency extrapolated to the entire student debt market, the report says out of the total 4.4 million borrowers in repayment for more than 20 years, fewer than 200 are expected to benefit from debt cancellation from IDR between 2020 and 2025.

ED worked with negotiators late last year in an attempt to formulate a new IDR plan. However, ED and negotiators failed to reach consensus on the plan, with many of the non-ED representatives saying the plan wouldn't go far enough in addressing the shortcomings of current IDR plans.