Association of Military Banks of America

Student Loans:  What Borrowers Need to Know About Income-Driven Repayment Plan Adjustments

By Amy Miller, AFC®

The Biden Administration’s Student Debt Relief plan proposed providing up to $20,000 in debt relief for federal borrowers who also used Pell Grants and $10,000 for all other federal borrowers. The applications to apply for relief were opened briefly in the fall of 2022 and received 26 million applications. Approximately 16 million applications were processed and approved before the plan was blocked by a federal judge in Texas and a panel of judges in Missouri.

The Supreme Court heard oral arguments for the case in February 2023 and made its final ruling on June 30, 2023, striking down the plan in a 6-3 decision, stating it was an overstep of the administration’s authority and was impermissible under The HEROES Act.

President Biden has since announced that he will now be pursuing a different process to cancel $39 Billion in student loan debt for 804,000 borrowers using the Higher Education Act. This method will require Negotiated Rulemaking which requires the involvement of a committee that will work together to create a plan. This could take time……

In the interim, there are some things that borrowers can do now to manage their student loan debt and possibly have some of their loans forgiven. This week, we’re reviewing one of the ways to do that – the recently announced Income-Driven Repayment Plan Adjustment.

IDR Account Adjustments (Income-Driven Repayment)

Upon graduation, student loans are automatically placed in the standard repayment plan. This plan is designed and set up to have the entire loan balance repaid in 10 years. Unfortunately, this can be unaffordable for many. 

To combat this, income-driven repayment plans were created. These plans are based on the borrower’s income and are often more affordable since they are not based on the total balances of the loans. These plans are a good option for many and provide lower monthly payments and allow for the cancellation of remaining debt after 20-25 years of repayment. However, according to a Government Accountability Office (GAO) report last year, only 157 loans have been forgiven under this plan since its inception.

The GAO’s report found that servicers were putting borrowers into forbearance or deferment instead of offering these IDR plans that would have been more affordable and kept them in repayment status. It also found that servicers had no idea of how close individuals were to reaching this 20–25-year forgiveness threshold. Considering this information, the U.S. Department of Education (ED) has announced the IDR Account Adjustment plan to address these problems.

Under the IDR Account Adjustment Plan, the ED will review all borrower accounts that have at least one Direct Loan or Federal Family Education Loan (FFEL) Program loan held by the ED to identify all qualifying payments and determine how close individuals are to the 20–25-year threshold. They will be counting all payments including some forbearances and deferments prior to 2013 and then making one-time account adjustments.

Any time spent in default or in-school deferment will be excluded from the adjustment.  

The adjustments will be automatic for most, however, borrowers with Commercial FFEL & Perkins Loans must consolidate before they can access the IDR account adjustment. Borrowers can keep any credits received before consolidation. Any credit received under an IDR plan can also be credited toward the Public Service Loan Forgiveness Program (PSLF), which is a 10-year forgiveness program for those employed by a government or non-profit organization.

How to Know if Consolidation is Required

There are two types of FFEL loans. Some are held by the Department of Education and others are held by commercial lenders. Borrowers can log on to to check the status of each of their loans. Any loans labeled “owned by private lender” will need to be consolidated before they are eligible for any adjustments or forgiveness.  

A quick and easy way to know if your loans are owned by the Department of Education is whether you received the payment pause during the pandemic. Payments that were still required during the government pause, indicate the loan is commercially held.

Loans that are not currently held by the Department of Education will need to be consolidated before December 31, 2023.

How to Consolidate

A direct consolidation loan allows the combining of all outstanding federal student loans into a new direct loan. Learn more or start the consolidation process here: Student Loan Consolidation | Federal Student Aid

Account Adjustments

Account adjustments have begun for those that have been in repayment for 20-25 years first; all other borrowers’ accounts will be adjusted after that.

To learn more, read the full announcement from the U.S. Department of Education here.

Check back next week – we’ll be covering Public Service Loan Forgiveness (PSLF) and how borrowers can also receive PSLF credit in conjunction with the IDR account adjustments.