When will student loan forgiveness be applied in 2023?

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    Jordan Moore
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    Team StellarFi
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    In July 2023 President Joe Biden’s administration announced that more than 800,000 student loan borrowers would receive$39 billion in student loan forgiveness because of fixes to the income-driven repayment (IDR) plans.

    The administration’s IDR account adjustment initiative addresses past failures of the IDR and Public Service Loan Forgiveness (PSLF) plans. 

    Under the old plans, few borrowers actually received student loan forgiveness because of the programs’ complex eligibility criteria, loan servicers’ lack of clear communication, and improper tracking of payments toward forgiveness. This resulted in some borrowers ending up in expensive forbearances and loan deferments during which they accrued large amounts of interest, often making extra payments. 

    Under the updated IDR plan, the United States Department of Education will credit loan payments toward forgiveness that were not previously counted. For example, any past loan repayment under any repayment plan, including forbearance and deferment periods, became eligible.  

    IDR forgives student loans that have been in repayment for 20 or 25 years, depending on what degree level the loans were for. Those eligible for PSLF qualify for forgiveness after 10 years of repayment. 

    Under the new plan, borrowers who’ve hit their maximum years of repayment (20 or 25 years) will have their loan automatically forgiven. Borrowers who haven’t met their maximum years of repayment may see a reduction in how much longer they have to pay back the debt based on their updated payment calculation. 

    Borrowers with non-direct federal student loans seeking forgiveness must consolidate their loans by applying for a Direct Consolidation Loan before December 31, 2023. Those who have direct loans with different repayment histories can also consider this option. The Department of Education will apply the adjustment to the Direct and Federal Family Education Loan (FFEL) program in 2024. 

    If the borrower is seeking forgiveness through the PSLF program, they must certify their public service employment through the Department of Education’s PSLF portal.

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StellarFinance, Inc. and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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