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Potential Student Loan Forgiveness Loophole Could Cause Problems And Confusion For Consolidating Borrowers



The Biden administration is straining to enact multiple, overlapping student loan debt relief initiatives. This includes one-time student loan forgiveness initiatives and adjustments, as well as more lasting regulatory reforms that will transform a broad swath of the federal student loan system.

But implementation of some initiatives is getting delayed due to budgetary constraints. And borrowers on track for at least some student debt relief programs may encounter significant confusion and serious problems if the Education Department does not clarify program rules and the interrelationship between one-time waivers and new, more permanent regulations that will go into effect later this year. This is particularly true for borrowers seeking student loan forgiveness through Public Service Loan Forgiveness (PSLF) and Income-Driven Repayment (IDR).

Here’s what’s going on.

Biden Administration Relaxes Student Loan Forgiveness Rules For PSLF and IDR Under One-Time Waivers

Both PSLF and IDR plans can result in student loan forgiveness. PSLF is geared towards borrowers working in qualifying nonprofit or government employment, and can result in loan forgiveness in as little as 10 years (or 120 “qualifying payments”) for borrowers who meet all eligibility criteria. Separately, IDR can result in student loan forgiveness after 20 or 25 years in repayment under available income-based plans. IDR is also a required component of PSLF, so while the two are separate loan forgiveness programs, they also can be interrelated.


Historically, both PSLF and IDR have been poorly administered by the Education Department and its contracted loan servicers. As a result, the Biden administration established two temporary, one-time initiatives designed to rectify systemic problems with both PSLF and IDR.

  • First, the Biden administration created the Limited PSLF Waiver. This one-time fix dramatically expanded the category of federal student loans and payments that could count toward PSLF, resulting in millions of additional borrowers qualifying for relief. The waiver ended last fall.
  • Now, the Biden administration is rolling out the IDR Account Adjustment. Similarly to the Limited PSLF Waiver, the IDR Account Adjustment is a temporary, one-time fix that can allow certain past periods of repayment, deferment, and forbearance to “count” toward a borrower’s 20- or 25-year student loan forgiveness term, even for borrowers not presently in repayment under an IDR plan. This credit can also count toward student loan forgiveness under PSLF for borrowers working in qualifying public service employment — effectively extending many of the benefits of the now-ended Limited PSLF Waiver.

Meanwhile, the Education Department finalized new regulations governing the PSLF program, which are expected to take effect this July. The Biden administration also announced an overhaul of one key IDR plan called Revised Pay As You Earn (REPAYE). Together, these reforms are designed to codify some, although not all, elements of the Limited PSLF Waiver and IDR Account Adjustment once those temporary initiatives end, thus providing more lasting relief for borrowers.

Differing Impacts Of Loan Consolidation On Student Loan Forgiveness Under New Initiatives

But these overlapping initiatives may cause confusion for borrowers seeking to maximize student loan forgiveness benefits by consolidating their loans through the federal Direct consolidation loan program.

Under the Limited PSLF Waiver, Direct loan consolidation was required for borrowers with non-Direct loans (such as FFELP loans and Perkins loans) to qualify. And Direct loan consolidation could also benefit borrowers who had multiple loans with different repayment histories. The Education Department indicated that “the consolidation loan will be credited with the largest number of payments of the loans that were consolidated” — a huge benefit for borrowers with a mix of older and newer student loans. “If you had 50 qualifying payments on one Subsidized Stafford Loan and 100 qualifying payments on another Subsidized Stafford Loan and you consolidate those loans, you will receive 100 qualifying payments on the new Direct Consolidation Loan,” according to official guidance explaining the benefit.

The Education Department’s treatment of Direct consolidation loans is murkier for the IDR Account Adjustment. Just like with the Limited PSLF Waiver, borrowers with commercially-held FFELP loans and Perkins loans must consolidate those loans via the federal Direct consolidation program to qualify for the relief. The current official published guidance on the initiative is silent, however, on what happens when borrowers consolidate loans with different repayment histories. Education Department officials have been communicating through formal and informal channels (such as public webinars) that Direct consolidation loans would be treated the same under the IDR Account Adjustment as they were under the Limited PSLF Waiver — meaning Direct consolidation loans would be credited with the largest number of payments of the loans being consolidated. But this is not confirmed in the department’s official published guidance, leaving many borrowers unsure.

Complicating the situation further is the Education Department’s recent, unannounced extension of the IDR Account Adjustment’s consolidation deadline and expected delayed implementation of the initiative. Previously, the department had said borrowers who must consolidate would need to do so by May 1 “to get the full benefits of the one-time account adjustment,” with implementation expected to occur by this summer — just as the new regulations go into effect this July. But last week, the department pushed out the consolidation deadline to the end of 2023, with implementation now not expected until sometime in 2024.

This new change is significant because now, implementation of the IDR Account Adjustment will overlap with the new program regulations for PSLF, and potentially for IDR as well. Under new PSLF regulations set to take effect on July 1, new Direct consolidation loans that contain loans with different histories and qualifying PSLF payment counts would receive the weighted average of PSLF payments based on the underlying loans — a significant departure from the treatment of consolidations under the Limited PSLF Waiver and seemingly the IDR Account Adjustment (although also better than the way the programs worked before, whereby consolidation could completely erase a borrower’s past progress towards student loan forgiveness).


Similarly, under the proposed overhaul of the REPAYE program, new Direct consolidation loans that contain loans with different histories would receive IDR credit based on the weighted average of those underlying loans (although officials have not announced when this new REPAYE plan will be finalized and available).

Change In Timeline For IDR Adjustment Could Function As Temporary Student Loan Forgiveness Loophole For Consolidations— And A Source Of Confusion

With the recent extension of the consolidation and implementation timelines under the IDR Account Adjustment, the initiative may now function as a “loophole” for borrowers to temporarily get around the weighted-average treatment of Direct consolidation loans under the new PSLF and IDR regulations between July and December 2023. In other words, absent this change, under the new regulations effective July 1 (at least for PSLF), new Direct consolidation loans would be credited with the weighted average of the number of PSLF payments based on the underlying loans being consolidated; but with the extension of the IDR Account Adjustment consolidation deadline to December 31, it’s possible that borrowers could continue to benefit from the more favorable consolidation treatment during those interim months, with their new consolidation loans credited with the largest number of payments of the loans that were consolidated.

But without clear guidance from the Education Department, borrowers will be left to guess how officials will treat this period where the IDR Account Adjustment overlaps with the new PSLF regulations (and potentially the new REPAYE regulations, if those wind up going into effect before the end of the year, as well). Advocates have been pushing department officials to publish more detailed guidance and Frequently Asked Questions for months. But facing significant budgetary constraints while implementing multiple complex initiatives, department resources are strained. And it is unclear if, or when, more comprehensive guidance will be made available.

In the meantime, borrowers looking to maximize the benefits under these initiatives will continue to contend with uncertainty and a lack of clear answers.

Further Student Loan Forgiveness Reading

Student Loan Forgiveness Timeline And Deadlines Change Again In New Updates To One-Time Adjustment

Student Loan Forgiveness: Whether Biden Extends Payment Pause Again May Depend On Supreme Court Ruling

4 Student Loan Forgiveness Updates After Supreme Court Hearing


What Happens If The Supreme Court Strikes Down Biden’s Student Loan Forgiveness Plan?

Source: Fox Business

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