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For years, federal loan forgiveness programs have been criticized for their overly exclusive and often confusing eligibility requirements. As a result, thousands of borrowers were unexpectedly denied the forgiveness of loans they had been working towards for years.

But for some borrowers, that relief is finally coming.

On April 19, the United States Department of Education announced a plan to help public service workers and low-income borrowers. This plan will immediately cancel the debt of at least 40,000 eligible borrowers, impacting an estimated 3.6 million borrowers. Here’s what you need to know about who will benefit from the Comprehensive Student Loan Forgiveness Plan and how it might affect your repayment situation.

Who will benefit from the means-tested repayment forgiveness?

There are many groups of people who could benefit from this forgiveness plan. Read below to see who this will affect.

Those who went into tolerance

The Department of Education shows that more than 13% of borrowers who took a grace program between July 2009 and March 2020 have used grace for at least 36 months. During that time, if you had a forbearance plan for more than 12 consecutive months and more than 36 months together, the Federal Student Aid (FS) will make a one-time bill adjustment toward forgiveness under this forgiveness plan. These changes will be automatically applied to borrowers’ accounts later this year.

The federal government is doing this because of reports that credit managers were encouraging borrowers to apply for forbearance rather than encouraging them to switch to an income-driven amortization plan or a deferral program where interest would not mount. This expansion could bring thousands of borrowers across the line for cancellation and bring millions closer to canceling loans.

Those who work for public service loan forgiveness

The public loan forgiveness program forgives your remaining student loans on a direct loan (or consolidates other federal student loans into a direct loan) after you make 120 eligible payments while working full-time for an eligible employer, such as a non-profit. for-profit organization or government agency. You must also have an income-driven repayment plan for your payments to count toward the 120 payment requirement.

However, in October 2021, the federal government announced a temporary exemption from the determination of the PSLF program until October 31, 2022. This exemption allows borrowers who have worked for an eligible PSLF employer to count their payments toward PSLF even if they weren’t on an IDR subscription.

Because loan managers failed to adequately communicate that borrowers must have an IDR plan to qualify for PSLF, many borrowers were unaware that they had to change their amortization plan.

The PSLF waiver will help millions of borrowers move closer to full loan forgiveness. And according to Travis Hornsby of Student Loan Planner, this new IDR waiver can be combined with the PSLF waiver to help borrowers count more of their payments.

Borrowers who had forbearance while working for a PSLF-eligible employer could count those months of forbearance toward the 120 payment requirement.

“People who are in public service can take a double whammy,” Hornsby said.

The PSLF waiver will expire on October 31, 2022, so interested borrowers should contact their loan administrator and complete the PSLF form. Some borrowers may need to consolidate their loans first before receiving the full PSLF waiver.

Those who have been paying for more than 20 years

Many borrowers have been paying for more than 20 years and still have months or even years to go with their repayment terms. This waiver may mean that their loans can be waived if they have made at least 20 years of payments on undergraduate student loans or 25 years of payments on graduate or professional student loans.

Let’s say you have a direct consolidation loan from a graduate or professional school. If you have the standard repayment schedule, you have a repayment term of 30 years. With this forgiveness, a borrower could have their loans forgiven in year 25 of 30, even though the repayment term isn’t technically over yet.

What borrowers should do now

Wait before contacting your administrator

Hornsby said borrowers should wait a few weeks before making changes to their student loans. He said borrowers could hear from their loan managers about changes to their loans, such as receiving credit for forbearance or for payments made under another installment plan.

But borrowers should avoid calling their loan manager until a few weeks have passed. That gives the government enough time to guide the loan servicers on how to proceed. If you call your loan manager now, they may not be able to give you the right advice.

Consolidate if you have FFEL loans

When the Covid-19 pandemic began, the federal government suspended payments on federal student loans with a 0% interest rate. But the special Covid tolerance program did not apply to borrowers with commercial Federal Family Education Loans (FFEL).

While most borrowers shouldn’t change anything at this point, Hornsby said those with commercial FFEL loans should consolidate their loans into a federal direct consolidation loan. This will likely help them qualify for more refund options later on.

A federal direct consolidation loan is not the same as consolidating with a private lender. If you consolidate loans with a private lender, they become private student loans and you are not eligible for federal loan forgiveness or cancellation programs.

Prevent refinancing of your student loans

With the Federal Reserve continuing to raise interest rates, many borrowers feel their best chance of refinancing their student loans at lower interest rates is waning.

If you have federal student loans, Hornsby recommends not refinancing and seeing what new programs or exemptions the government will issue.

“The only people who should be refinancing right now are those who have private student loans and who are very afraid of interest rate hikes,” he said.

Save more, spend smarter and let your money go further

Zina Kumok is a freelance writer specializing in personal finance. As a former reporter, she has covered murder trials, the Final Four, and everything in between. She was featured in Lifehacker, DailyWorth and Time. Learn how she paid off $28,000 in student loans over three years at Conscious Coins. More from Zina Kumok

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