Income-Driven Repayment Plan Forgiveness — What to Know

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Stanley Tate

#1 Student Loan Lawyer

Updated on July 14, 2022

Income-driven repayment plan forgiveness writes off your remaining loan balance after 20 or 25 years of monthly payments.

Income-driven repayment plans help borrowers stay out of default and in good standing by giving them an alternative to making payments on a 10-year standard repayment plan. Each plan ties monthly payments to a portion of your discretionary income and stretches the repayment period from 10 years to 20 to 25 years. They also come with another benefit: the federal government will write off the outstanding balance after two decades of payments.

These bonuses don’t apply to private student loans. Ask your lender if they offer any options for private student loan relief.

The U.S. Department of Education recently announced it would use a one-time revision that will push millions of borrowers closer to IDR forgiveness by counting:

  • Past payments toward the 240 or 300 needed for IDR forgiveness.

  • Months spent in deferment — except for in-school deferment — before 2013 as qualifying payments.

  • Forbearances of over 12 consecutive months and over 36 cumulative months.

The department will implement these account adjustments right away. But borrowers will have to wait until the end of the year before they get an updated IDR payment count.

Keep reading to learn how to get income-driven repayment plan forgiveness ASAP.

Income-driven repayment plan forgiveness timeline

Federal student loan borrowers who choose a repayment plan based on their income can get their loans forgiven after making at least 20 years’ worth of payments. Here’s when your loans will be forgiven under each plan:

  • Pay As You Earn (PAYE): forgives Direct Loan balance after 240 monthly payments (20 years). Eligibility for the PAYE Plan hinges on you being a new borrower.

  • Revised Pay As You Earn (REPAYE): forgives Direct Loan balance for undergraduate loans after 240 monthly payments (20 years). The REPAYE plan writes off the remaining balance on Direct Loans after 300 monthly payments for graduate loans.

  • Income-Based Repayment (IBR): forgives Direct Loan balance for undergraduate loans after 240 monthly payments (20 years). The IBR plan writes off the balance on Direct Loans and FFEL Loans after 300 monthly payments for graduate loans.

  • Income-Contingent Repayment (ICR): forgives Direct Loan balance after 300 monthly payments (25 years). ICR is the only repayment option that leads to Parent PLUS Loan forgiveness.

If your loans have been in forbearance due to the Covid-19 pandemic forbearance, you have already received credit toward IDR forgiveness and the Public Service Loan Forgiveness (PSLF) Program — even if you made no payment.

Learn More: Why Does My Spouse Have to Sign My Income-Driven Repayment Plan?

One-time waiver and adjustments

In April, the Education Department announced it would use a one-time account adjustment to retroactively credit borrowers with more payments toward loan forgiveness. The changes address three long-standing problems caused by student loan servicers:

  • Borrowers struggling to make their student loan payments were steered into long-term forbearances instead of being guided into income-driven repayment plans, which would have given them an affordable monthly payment.

  • Once in forbearance, borrowers were allowed to stay there for much longer than permitted.

  • Borrowers didn’t get an accurate count of qualifying payments made on income-driven repayment plans.

The department estimates the adjustment should cause:

  • Immediate debt cancellation for at least 40 thousand government and nonprofit employees under the Public Service Loan Forgiveness Program.

  • Thousands of people who’ve been paying their loans for at least 20 years will have their remaining balances erased.

  • Over 3.6 million borrowers will move at least three years closer to income-driven repayment forgiveness.

You don’t need to apply for the IDR Waiver. The changes will be applied automatically to most borrowers’ accounts by the end of the year. But if you have commercially held FFEL Loans, you will need to consolidate to receive the credit adjustment.

Learn More: What Happens to Student Loans After 25 Years?

How to qualify for IDR loan forgiveness

Qualifying for IDR loan forgiveness takes two steps:

Step 1: Choose a repayment plan.

Each repayment plan caps payments at a portion of your discretionary income, which is based on your adjusted gross income (AGI) and family size. Most borrowers with Direct Loans are eligible for IBR, REPAYE, and PAYE plans. Parent PLUS Loan borrowers are eligible to enroll in the ICR plan only. Borrowers with loans made under the Federal Family Education Loan Program are eligible for IBR and ICR. They can gain access to REPAYE if added to a Direct Consolidation Loan.

You can apply for an IDR plan on the Federal Student Aid website, studentaid.gov, or by sending your student loan servicer a paper request form.

Learn More: What Is Considered a Significant Change in Income?

Step 2: Make the qualifying payments.

Depending on which plan you choose and if you borrowed loans for graduate school, you must make either 240 or 300 payments. Your monthly payment amount can vary each year as your income and family size change. To stay in a plan, you must recertify income-based repayment annually or whenever your income changes to get your loans and any unpaid interest written off.

Learn More: Student Loan Forgiveness After 20 Years

Changes to income tax bomb law

Other federal student loan forgiveness programs like the Public Service Loan Forgiveness Program offer tax-free loan forgiveness. But the IDR plans don’t. If you have a balance left at the end of the repayment term, the IRS will treat the forgiven amount as taxable income for that tax return year.

As part of the American Rescue Plan, lawmakers temporarily made forgiven student loan debt tax-free through the end of 2025.

Learn More: Who Qualifies for Student Loan Forgiveness

How to maximize chances at IDR loan forgiveness

    • Recertify your family size and annual income before your 12-month repayment term ends.

    • Confirm your recertification application has been received and all necessary documents are included.

    • Make your monthly payments on time (within 15 days of the due date).

    • Schedule auto-pay for your monthly student loan payments.

    • Download your payment history each year.

    • Check your payment history to make sure your payments are being counted properly.

    • Keep track of the number of qualifying payments you have made on your federal student loans.

    Also, before you consolidate, understand that consolidating from the FFEL program into the Direct Loan program resets the number of qualifying payments you’ve earned to zero.

    UP NEXT: How to Apply For Student Loan Forgiveness 2022

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