Recently I wrote about the proposed new REPAYE program for federal student loans. While we still haven’t heard whether this is going to go through as proposed or will be modified, we did get a different announcement last week from the Department of Education which is also a huge deal for many federal student loan borrowers.
The following information is mostly borrowed (with permission, and pun intended) from David Gourley, who sent this out in his weekly newsletter.
The announcement actually clarifies the rules around something that has been in place since April 6th, 2022 and, crucially, extends the deadline from May 1st to December 31st, 2023. While this applies to more people than just those who qualify for Public Service Loan Forgiveness (PSLF), that’s what I’m going to focus on for my audience. There are four important pieces to the IDR waiver, although I suspect the last one is going to have the largest impact on folks.
- Any time in repayment since October 2007 qualifies toward PSLF if you were in public service employment. Previously it only counted if you were in an income-based repayment plan but, now, if you were in any kind of payment plan it will count.
- Months you were in forbearance will now count as “payments” toward your 120 payments for PSLF. Previously, any months you were in forbearance didn’t count toward PSLF, so the time until your loans would be forgiven could be extended beyond ten years (120 payments). (Note that there are some details here, like you have to have been in forbearance for at least 12 consecutive months or an aggregate of 36 months.) So, for example, if you were in forbearance for two years, those 24 months will now count toward the 120 months needed for forgiveness.
- Any months of deferment prior to 2013 will count as repayment (except in-school deferment). This one will not apply to as many folks, but if you had any deferments prior to 2013 that were not in-school deferments, these will now count toward your 120 payments (assuming you had eligible employment).
- If you consolidate multiple student loans you will get the longest payment history on those loans. This one is huge for many folks. Let’s say you had undergraduate student loans, became a teacher, and then taught for five years. You then decided to get your Master’s degree and took out additional student loans for that. If you consolidate your loans together before December 31st, those five years (60 months) of payments you made on your undergraduate loans will now also count as 60 months toward forgiveness on your graduate loans. (If you don’t consolidate, then the graduate loans would have 0 months of payment history, so while it will only take 5 more years for your undergrad loans to be forgiven, it would take 10 more years for those graduate loans to be forgiven.)
Again, this only works for federal student loans. And, if you have FFEL loans, you will have to consolidate them (which you positively, definitely want to do). And, as an additional bonus, if the new REPAYE program goes through, then the amount you will have to pay each month until you get to forgiveness at 120 months will likely be lower (and perhaps $0). And, of course, keep in mind that the last 3+ years that student loans have been “paused” due to the pandemic also count toward your 120 months.
So, if you have federal student loans and work for an employer that qualifies for PSLF, please, please, please look into this (and watch for more information about the new REPAYE program in the next few months).