IDR Account Adjustment: Get Extra Credits For Past Payments
Have federal student loans? Make sure you’re set up to qualify for the upcoming IDR account adjustment to help you reach repayment and forgiveness sooner!
Biden’s loan cancellation may be on thin ice, but there’s one student loan relief update you’ll definitely want to plan for this year:
IDR account adjustment.
Don’t be fooled by the boring title. This adjustment could provide HUGE benefits for you.
For starters, it could get you years closer to forgiveness… or a serious headstart if you’re applying for forgiveness in 2023.
In this article, I cover
Summary
If you have federal loans (including FFEL or Parent PLUS loans) make sure you’re set up to qualify for this automatic payment adjustment.
What is the IDR account adjustment program?
Later this year and coming into 2024, the government will be implementing an automatic adjustment to income-driven repayment (IDR) counts on your loans.
In the government’s attempt to right the wrongs made by loan servicers, many payments that weren’t made on an IDR will be counted as if they were.
Essentially, this can fast-track your road to forgiveness and student loan repayment!
What’s an IDR?
IDR (Income-Driven Repayment) plans are specific federal payment plans where your bill is based on your income.
Not to be confused with the Income-Contingent Repayment (ICR) plan, which is one of the IDRs, but is the worst option.
How does IDR account adjustment work?
For most borrowers, this adjustment will likely be done automatically.
According to the Department of Education, borrowers will start seeing their number of IDR payments rise in 2024.
Qualifying payments include
Payments on a fixed payment plan
Time spent in forbearance (if more than 12 consecutive months OR 36 total months).
If you have a consolidated loan, payments made to previous qualifying loans count toward this as well.
For example, say you consolidated your federal student loans in 2018 after making 36 consecutive payments over 3 years.
Under this summer’s IDR account adjustment program, these 36 payments will now be credited to your current IDR account!
The IDR account adjustment will credit 1) payments you made on a fixed plan, 2) time spent in forbearance, and 3) previous payments made to loans that you’ve consolidated.
Why is this significant? Because of student loan forgiveness.
Since standard forgiveness is based on 20 or 25 years' worth of IDR payments, this adjustment could get you years closer to total forgiveness of your student loan balance.
Plus, starting July 1, 2023, if you missed the limited PSLF Waiver deadline last fall… you’ll have a SECOND CHANCE to apply for these same benefits!
Under Public Service Loan Forgiveness (PSLF), the payment period is only 10 years… and this boost will get you even closer to the promised land of tax-free forgiveness.
To apply for these “second chance” PSLF benefits this July, you’ll need to be currently employed by a public sector or non-profit employer.
2023 Forgiveness Update
If borrowers have reached forgiveness, they’ll start to see their loans forgiven this spring!
When does loan consolidation make sense?
A loan consolidation through Federal Student Aid could maximize your benefit here.
For example, if you have multiple loans with differing lengths of repayments, you can consolidate these loans and start with the highest payment count!
That means if you have 3 loans with different payment counts - say 80, 30, and 30 - after consolidation, the payment count would now be 80.
If you have FFEL or Parent PLUS loans, loan consolidation can make a lot of sense to maximize this benefit. For Parent PLUS loans, be sure to consolidate into two batches for a double loan consolidation.
If you have FFEL loans, consolidating here could really benefit you.
Since FFEL loans are owned by a private party, but backed by the Dept of Education, these payments aren’t eligible for the account adjustment right out of the gate…
But, if you consolidate them into a direct loan consolidation, you can add these previous FFEL loans’ payment history to your overall payment history.
Finally, if you have Parent PLUS loans, DON’T consolidate everything into one loan.
You will need to go through the double loan consolidation process which can open up better IDR plans and massive opportunities for forgiveness.
What’s double loan consolidation?
Double loan consolidation is a legal loophole for Parent PLUS loans that use 2 batches of loan consolidations to qualify for better payment plans and loan forgiveness.
At least 2 Parent PLUS loans are required, or a combination of Parent PLUS and other federal loans.
What do I need to qualify?
For most federal loans, this process happens automatically. If you have FFEL or Parent PLUS loans, there are a couple more considerations and steps to take before the end of 2023.
So, your first step is to review your loan situation, list the types of federal loans you have, and determine your next steps, which I list below.
To make sure you qualify for this benefit, review your loan situation and see what kind of loans you have. This will help you determine which steps to take next.
If you have FFEL loans:
Consolidate them into a direct loan consolidation.
After this, the adjustment will happen automatically, but…
Note your FFEL loan payment history to gauge how many payment credits to expect.
If you have 2 or more Parent PLUS loans and/or federal loans:
Don’t consolidate all of them into one loan.
Use a double loan consolidation to qualify for adjustment and better IDR plans.
Note your loan payment history to gauge how many payment credits to expect.
After this, the adjustment will happen automatically.
For all other federal loans:
This adjustment will happen automatically.
Note your loan payment history to gauge how many payment credits to expect.
Once you qualify, your last step will be updating your student loan repayment plan and deciding how to leverage your savings!
My clients like to use their savings to
Build their retirement nest egg
Grow their investment portfolio
Pay off other debts, like a mortgage or medical bills
Support their kids or another family member
Take more vacations
You’ll see this IDR adjustment happen automatically if you have qualifying loans, and you’ll likely start seeing your payment counts change in early 2024. If you have FFEL or Parent PLUS loans, you’ll just need to take a couple steps first.
Key Takeaways
If you have federal loans, you’ll want to make sure you qualify for IDR adjustment so you pay back your loans more quickly. It can also help you get closer to having your loans forgiven!
IDR account adjustment is a new program that gives borrowers in IDR plans credit for payments that didn’t previously qualify.
Beginning in the summer of 2023 through early 2024, qualified borrowers will see updates to their accounts. Payment credits will process automatically.
Qualified borrowers get extra credits for 1) payments made on a fixed plan, 2) time spent in forbearance, and 3) previous payments made to loans that are consolidated now.
For FFEL or Parent PLUS loans, look into loan consolidations first.
If you have questions about IDR adjustment, loan consolidations, or student loan repayment options in general, reach out and we’ll discuss what makes sense for you.
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At your service,
Erik Kroll