How To Take Advantage of One Time Account Adjustments Toward Income-Driven Repayment Plans

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This is a repost of an article first published on June 8, 2023. The previous deadline to consolidate your federal student loans and take advantage of a one-time account adjustment was December 31, 2023. That deadline has now been extended until April 30, 2024 so you have less than 1 month left to make moves! Taking this step can potentially bring you loan forgiveness or get you much closer to forgiveness.

If you have federal student loans and your loan payments are too high compared to your paycheck, one option to consider is switching to an income-driven repayment (“IDR”) plan. Your monthly student loan payment is calculated based on your income and family size and set at an amount meant to be more affordable. With these IDR plans, you are typically required to make a certain number of payments (typically 20 or 25 years) and the amount of time required depends on your specific plan and loans. If you are enrolled in the Public Service Loan Forgiveness (“PSLF”) program, you are required to make 120 months (or 10 years) worth of payments while working for a qualifying organization. In all of these situations, once you make the required number of payments, your remaining loan balance gets forgiven!

What problems created the need for the one-time account adjustment?

Historically, there have been a lot of issues with how the Department of Education handled these programs. Student borrowers were often misinformed by their loan servicers about payment options and there were data inaccuracies with tracking the number of IDR payments made. As a result, you may not have been getting the payment credit you could or should have received towards loan forgiveness. For example, loan servicers were steering people towards putting their loans into forbearance when they could have instead opted for an IDR plan with a monthly payment as low as $0. Going on an IDR plan would have meant making progress and getting payment credit towards loan forgiveness, whereas going into forbearance typically does not. This could set borrowers back months, or even years, towards potential loan forgiveness.

What exactly is the one-time account adjustment and how will it help?

The government is taking steps to address these failures through a one-time account adjustment that will count certain periods of deferment/forbearance toward forgiveness under IDR plans and PSLF as well as revise the number of IDR payments applied to a borrower’s account to fix past issues with counting IDR payments. This will be a huge benefit for those with student loans as it allows borrowers to receive additional credit for past payments and move closer to loan forgiveness. 

As a result of this account adjustment, one of these scenarios could happen to you:

• You could end up closer to the end of your repayment period and closer to student loan forgiveness

• If you reach the end of your repayment period with the one-time adjustment, you will automatically receive loan forgiveness

• If you have more than the number of months required in your repayment period (meaning you overpaid), you will receive a refund for any overpayment in most cases. 

What changes will be made under the one-time adjustment?

With the one-time adjustment, the government will review every borrower account that has at least one Direct Loan or one FFEL Program loan held by the U.S. Department of Education. They will identify all payments to be counted and tell your loan servicer to make the one-time update to your account. This means if there were certain payments or months where you did not get credit, you should now receive that credit because of this adjustment. 

The account adjustment will count time toward IDR forgiveness, for any of the following:

• any months in a repayment status, regardless of the payments made, loan type, or repayment plan;

• 12 or more months of consecutive forbearance or 36 or more months of cumulative forbearance;

• any months spent in economic hardship or military deferments in 2013 or later;

• any months spent in any deferment (with the exception of in-school deferment) prior to 2013; and

• any time in repayment (or deferment or forbearance, if applicable) on earlier loans before consolidation of those loans into a consolidation loan.

Which loans are eligible for the one-time adjustment?

The new adjustments will only be applied to Direct and FFEL Program loans held by the U.S. Department of Education, which means the account adjustment will be automatic for most people. You do not need to be currently enrolled in an IDR plan to benefit from this adjustment. However, if you have commercially managed FFEL, Perkins, or Health Education Assistance Loan (HEAL) Program loans, the adjustment will not be automatic. Borrowers with these loans must apply for a Direct Consolidation Loan by April 30, 2024 in order to get the full benefits of the one-time account adjustment.

Are there any other benefits to consolidation?

There is one other potential perk of consolidating your loans before April 30, 2024. Previously, if you consolidated loans with different amounts of time in repayment, the number of qualifying payments included in the consolidation loan used a weighted average of those payments. However, if you consolidate before April 30, 2024, the consolidation loan will be credited with the longest amount of time in repayment of the loans that were consolidated. For example, if you consolidate two loans where you had 50 months of time in repayment on one loan and 100 months of time in repayment on another loan, you would receive credit for 100 months of payments on the new Direct Consolidation Loan. This can put you much closer to loan forgiveness, especially if you have had loans outstanding for a long time! However, one downside to consolidating is this may increase your required monthly student loan payment, especially if your income has increased since you last certified your income. So you will need to consider whether the increased monthly payment is affordable and worth it, given the increase in payment count and how close you will be to forgiveness. 

Are there any catches with consolidating my loans?

In the past, consolidating your student loans was not always recommended since it would reset your payment count for IDR and PSLF to zero. This meant you would lose credit for payments made toward IDR plan forgiveness or PSLF, and you would have to start over and make another 10, 20, or 25 years worth of payments, depending on your situation, in order to qualify for forgiveness. However, under this one-time income-driven repayment account adjustment, you will not lose credit for those past payments if you apply for consolidation before April 30, 2024. 

How does the one-time adjustment affect PSLF?

If you work or have worked for the U.S. government or not-for-profit organization while having student loans, you may qualify for PSLF. If you have not yet enrolled in the program, we recommend applying using the PSLF form and certifying your employment for all years where you worked for a qualifying organization as soon as possible. For PSLF applicants, the following will apply:

• All periods credited toward IDR will also be credited toward PSLF for eligible loans and periods where the borrower certifies public service employment.

• If you’ve applied or will apply for PSLF and certify your employment, you may see the benefits of this adjustment to your qualifying payment count.

• These changes will be applied automatically, to all PSLF-eligible Direct Loans, including consolidated and unconsolidated parent PLUS loans.

• Borrowers who have commercially or federally held FFEL loans and who consolidate those loans into Direct Consolidation Loans before April 30, 2024 will also get PSLF credit under the account adjustment.

What next steps should I take?

The #1 takeaway is to check what type of student loans you have and where they are held. You can check on who your loan servicer is by logging into your Federal Student Aid account here. 

Depending on your situation and the type of loans you have, you may need to take action now to take advantage of this adjustment so make sure to double check your loans now. Remember, the new adjustments will only be applied to Direct and FFEL Program loans held by the U.S. Department of Education in 2024. If this applies to you, these adjustments should be automatic. However, if you have FFEL loans that are not held by the U.S. Department of Education, Perkins, or Health Education Assistance Loan (HEAL), you must apply for consolidation to benefit from the adjustment. The deadline to consolidate and qualify for this account adjustment is April 30, 2024 but we recommend consolidating well in advance. 

If you believe you can qualify for PSLF and are not yet enrolled in the program, apply and certify your employment history as soon as possible. Depending on the types of loans you have, you may also need to consolidate your loans before April 30, 2024 to get PSLF credit under this adjustment.

You do not need to be enrolled in an IDR plan to benefit from this adjustment. Once the one-time adjustment goes through, make sure you enroll in an eligible repayment plan to continue getting credit towards loan forgiveness in the future. 

Do you have questions about your student loans? Schedule a free 20-minute consultation call to speak to a member of our team. We will ask you a few basic questions to get to know you more, walk you through our financial training program steps, and of course answer any questions you may have. No pressure to join! Need advice quickly? Talk to one of our Trainers on Demand.

Check out Savi, which can help you identify what student loan programs and repayment options are the best fit for you. Check them out here.