How to Qualify for Loan Forgiveness after Income-Driven Repayment

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By Mark Kantrowitz

March 10, 2021

According to a report by the National Consumer Law Center (NCLC), only 32 borrowers have qualified for loan forgiveness after 20 or more years in an income-driven repayment plan. Learn why so few borrowers have qualified for forgiveness and what you can do to qualify.

The NCLC report blames the failure of borrowers on income-driven repayment plans to get forgiveness on mismanagement by the U.S. Department of Education and federal student loan servicers.

Is this Characterization Fair?

The government forgives federal student loans after 25 years in repayment in the Income-Contingent Repayment (ICR) and Income-Based Repayment (IBR) plans and after 20 years in repayment in the Pay-As-You-Earn Repayment (PAYE) plan.

The Revised Pay-As-You-Earn Repayment (REPAYE) plan is a hybrid, with borrowers qualifying for forgiveness after 20 years if they have only undergraduate federal student loans and after 25 years if they have any graduate federal student loans.

Congress created ICR as part of the William D. Ford Federal Direct Loan Program (Direct Loans) through passage of the Higher Education Amendments of 1992 and the Student Loan Reform Act of 1993 (part of the Omnibus Budget Reconciliation Act of 1993).

The first Direct Loans were made in 1994-95 and went into repayment in 1995. This means the soonest a borrower could qualify for forgiveness after 25 years in ICR was in 2020.

Borrowers could qualify for forgiveness sooner by switching from ICR to REPAYE, if they had only undergraduate federal student loans. The payments made under ICR count toward the 20-year forgiveness under REPAYE. REPAYE became available starting in 2015. So, a borrower could have qualified for forgiveness after 20 years in ICR as early as 2015 by changing their repayment plan from ICR to REPAYE.

The Direct Loan program had a slow launch, with 318,000 borrowers in 1994-95 and 1,556,000 borrowers in 1995-96, including 8,000 and 75,000 borrowers, respectively, who had obtained a Federal Direct Consolidation Loan. But, surely more than 32 borrowers would have been in ICR starting in 1995.

That so few borrowers have qualified for forgiveness is particularly troubling, after only 3% of borrowers who applied for Public Service Loan Forgiveness have received loan forgiveness.

Why Wouldn’t You Qualify for Loan Forgiveness After Being in an Income-Driven Repayment Plan?

There are several reasons why a borrower might not qualify for loan forgiveness after 20 or 25 years in an income-driven repayment plan.

  • Late recertification causes a borrower’s loans to be put in a forbearance temporarily. Forbearances do not count toward the 240 (20 years) or 300 (25 years) payment requirement.
  • Borrowers with mid-year changes in income may not have realized that they can recertify income early, to adjust the loan payment to match their income.
  • Some borrowers may have been in an unemployment deferment or a forbearance instead of the economic hardship deferment. The economic hardship deferment counts toward loan forgiveness in an income-driven repayment plan, but not other deferments or forbearances.

Switching Repayment Plans to Qualify for Loan Forgiveness

In addition, there are several reasons why a borrower in ICR might decide against switching from ICR into REPAYE to have their loans qualify for forgiveness after 20 years instead of 25 years.

  • Some borrowers might not be aware that they can switch repayment plans to qualify for loan forgiveness sooner.
  • Some borrowers may be concerned about whether all of their payments under ICR will count toward the 20-year loan forgiveness under REPAYE. Consolidation can reset the clock on loan forgiveness, so be cautious about changes that may affect eligibility for loan forgiveness.
  • Borrowers who are living below the poverty line have a monthly payment of zero under ICR. Switching repayment plans won’t change their monthly loan payment, which will still be zero. So, there might not be any urgency to dealing with their student loans.
  • Some loan servicers do not provide loan forgiveness to eligible borrowers, even though the forgiveness is supposed to be automatic.

In addition, some borrowers may have been concerned about the taxability of the loan forgiveness. The IRS treats cancellation of debt like income on the borrower’s federal income tax return, substituting a tax debt for the education debt. Although a borrower who is in an income-driven repayment plan for two decades is likely to qualify for forgiveness of the tax debt due to insolvency, this is not guaranteed.

Some borrowers have decided against switching repayment plans to delay the forgiveness until it becomes tax-free. Other borrowers are using forbearances to delay the forgiveness.

With passage of the American Rescue Plan Act of 2021, more eligible borrowers may seek loan forgiveness now that it is tax-free (through December 31, 2025).

How to Qualify for Loan Forgiveness

There are some strategies to help you qualify for loan forgiveness after 20 or 25 years in an income-driven repayment plan.

  • Recertify your loans promptly, by the deadline date, every year.
  • Keep track of the number of qualifying payments you have made on your federal student loans.
  • If your loans are in the ICR or IBR plans in the Direct Loan program and you have only undergraduate loans, consider switching into the REPAYE plan to qualify for forgiveness five years earlier. ICR and IBR forgive the remaining debt after 25 years in repayment, while REPAYE forgives the remaining debt after 20 years in repayment for borrowers with just undergraduate loans.
  • Beware of consolidating from the FFEL program into the Direct Loan program, as this may reset the number of qualifying payments to zero.
  • Without switching repayment plans, the soonest a borrower might qualify for loan forgiveness is:
    • 2020 for ICR
    • 2034 for IBR
    • 2032 for PAYE (2029 if the borrower received an economic hardship deferment before 2012)
    • 2035 for REPAYE
  • Contact the loan servicer if you believe that you have qualified for loan forgiveness. The loan servicer should send you written notification at least six months before you expect to qualify for loan forgiveness.

The tax-free status of loan forgiveness expires on December 31, 2025. That means only borrowers with loans that were in ICR might qualify for loan forgiveness before the tax-free status expires. However, Congress is is likely to extend the expiration date or make the status permanent before it expires.

Borrowers who have private student loans do not qualify for loan forgiveness, but they may consider refinancing.

A good place to start:

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