5 Student Loan Forgiveness Mistakes To Avoid, According To An Attorney

Borrowers have collectively received nearly $130 billion in student loan forgiveness during the last two years, according to the Biden administration, under a variety of different initiatives. And the administration is still working to implement more student debt relief.

But navigating a confusing array of loan forgiveness programs, all with different eligibility rules (and some with deadlines) can be tricky. Complicating the situation further are ongoing problems with student loan servicing, resulting billing errors and misinformation.

It’s more important than ever for borrowers to be aware of their options when it comes to student loan forgiveness, and to be careful of mistakes. Here are some of the big ones to avoid.

Don’t Avoid Evaluating Student Loan Forgiveness Options

The Biden administration is implementing multiple student loan forgiveness initiatives, and it’s important for borrowers to explore their options.

New regulations went into effect on July 1 that expand relief or ease access to several loan forgiveness programs designed to help borrowers with disabling medical conditions, those who work in public service careers, and people who attended schools that engaged in fraud or other improper conduct. The administration has also rolled out a new income-driven repayment plan called SAVE, which can lower monthly payments and accelerate student loan forgiveness for some borrowers.

In addition, the Education Department is continuing to approve student loan forgiveness under the IDR Account Adjustment, a temporary initiative that can credit borrowers with time toward 20- or 25-year repayment terms associated with IDR loan forgiveness. More than 850,000 borrowers have already been approved for student debt relief, and hundreds of thousands of public service borrowers have also been approved for loan forgiveness under the program.

Don’t Miss Important Student Loan Forgiveness Deadline

The IDR Account Adjustment is of particular importance for some borrowers. Around $40 billion in student loan forgiveness has been approved under the program so far, with more on the way.

But there is a key deadline to be aware of. Some borrowers will need to consolidate their loans via the federal Direct consolidation program in order to qualify or maximize benefits under the initiative. This includes those with commercial FFEL-program federal student loans, as well as some borrowers who have multiple loans with different repayment histories. The consolidation deadline for the IDR Account Adjustment is December 31, 2023. Advocates are hoping this deadline gets extended, but so far, there is no indication that the date will be pushed out further.

Refinancing Can Eliminate Federal Student Loan Forgiveness Options

Direct loan consolidation through the U.S. Department of Education is much different from refinancing a student loan via a private or commercial lender. Borrowers who refinance their federal student loans through a private loan program risk forever walking away from the programs and benefits associated with the federal loan system, including federal student loan forgiveness programs. That’s because private student loans cannot be converted back into a federal loan. So refinancing a federal student loan via a commercial refi program is a one-way street out of loan forgiveness eligibility.

Most borrowers who are looking to refinance their student loans do so to get a better interest rate. Given the current interest rate environment, as a practical matter many borrowers may not be able to get much of a reduction through a private loan refinancing program. But even if they can, there are major risks of leaving the federal student loan system.

PSLF Borrowers Shouldn’t Forget To Certify For Student Loan Forgiveness Credit

While some federal student loan forgiveness programs are automatic, others require the borrower take action. This is particularly true for borrowers on track for Public Service Loan Forgiveness, a popular federal student loan forgiveness program for those working in nonprofit and government jobs.

To receive student loan forgiveness credit under PSLF, borrowers and their employer must complete an employment certification form. Following recent updates to the Education Department’s system, this process can now be completed entirely online using the department’s PSLF Help Tool. The department recommends that borrowers utilize this online tool as it can streamline review and approval, at least compared to a manually submitted paper application.

Be Careful About Early IDR Recertifications

Many borrowers are in income-driven repayment plans, including more than 5 million who have enrolled in Biden’s new SAVE plan. All IDR plans eventually result in student loan forgiveness, although the actual timelines can vary.

IDR plans require an annual income review, along with adjustments to monthly payments based on any changes to income and family size. However, the student loan pause — which lasted for over three years — has complicated the usual income recertification timeline. Borrowers who were in an IDR plan before the student loan pause went into effect, and have not re-certified their income or made other changes to their loans (such as consolidating or changing their repayment plan) should revert back to what their IDR payment was before the Covid pandemic began. This means that many borrowers will have an IDR payment based on old income data from 2019 or 2020.

This is perfectly fine, as no borrower will have to report their income until March 2024 or later. However, borrowers should be cautious about re-certifying early or changing repayment plans (such as enrolling in the new SAVE plan). Aside from borrowers who had previously been in the REPAYE plan (and were, thus, automatically enrolled in SAVE), any early change to a current IDR plan will be based on a borrower’s current income or their income reported on their most recently-filed federal tax return. So if you have an IDR payment based on 2019 or 2020 income, and your income has since increased significantly, it may be prudent in some cases to hold off on re-certifying your income or changing your IDR plan until sometime in the first half of 2024 Otherwise, you may be unknowingly setting yourself up for a jump in monthly payments much sooner than required.