Terry Savage: Student loan forgiveness deadline approaches

Don’t miss out on the December 31 deadline for consolidating your federal student loans — and possibly saving a fortune in interest, or having your balance completely forgiven! It’s called the One Time IDR Account Adjustment and you can manage the entire process online at StudentAid.gov.

The fast-approaching deadline for this one-time IDR Account Adjustment is Dec 31, 2023. This plan was designed to provide loan forgiveness of balances for those who have been paying on undergrad loans for 20 years, or for those who have been paying on graduate school loans or Parent Plus loans for 25 years.

This IDR Account Adjustment includes periods of forbearance, as well as any period in which your loans were in repayment status — even if you weren’t making a payment. All count toward that total loan repayment period, leading to forgiveness of the remaining balance. The borrower consolidates under the new, lower payments allowed in the SAVE income-based payment plan, where interest no longer accrues to the balance.

And until the year-end deadline, this consolidation does not restart the repayment clock, as is typically the case. (Loans consolidated after the year-end deadline will restart the repayment period.)

As a result of this program, the administration has already forgiven billions in loan balances, as borrowers consolidate existing loans to get new lower payments under the SAVE plan. They also get maximum credit for previous payments, either shortening their future repayment time or resulting in outright forgiveness.

Hidden opportunities

Student loan repayment expert Rae Kaplan (www.RaeKaplan.com ) explains that, buried within this one-time program, there is an opportunity to use this short window to consolidate newer loans with much older loans. For example, she points out that some newer Parent Plus loans for a borrower’s children might be consolidated with the parent’s own long-outstanding existing loans (no matter what the balance) and then the entire amount will be re-aged. That lowers the total repayment time on both sets of loans — or might even result in total loan forgiveness, even for the most recent loans!

There’s even a special benefit for those seeking a Public Service Loan Waiver (PSLF), which requires you to have completed 10 years of full-time work (could be two part-time jobs in one year), from October 1, 2007 forward. The employment does not have to be consecutive. But getting a signed waiver proving your employment is required. The result could be total loan forgiveness.

Kaplan advises that if you have previously worked in the public sector now is the time to get the employment certification form submitted to MOHELA (which services all loans registered for PSLF) so you can receive maximum credit under the executive order which expires Dec 31. If you can’t get the form signed by the previous employer, then submit your W2s for that period instead.

Here’s how to get started:

Step 1. Go to Studentaid.gov and sign in to your account using your federal student loan ID. There you can start the process to consolidate online. Just click on “repay loans.” Then use drop-down box to select “consolidate.” This process is for all federal student loans, but does not include private loans. Please note, if you have older FFEL loans, you definitely should include these loans in the consolidation.

As noted above, the consolidation process normally resets the repayment clock — but if you act by Dec 31, that rule does not apply. Instead, all those previous years of repayment status will give you more years of credit toward forgiveness under this executive order.

Step 2. While you’re logged in at studentaid.gov, after you consolidate your loans you should apply for an income-based repayment plan under today’s new more generous rules. Remember, the SAVE plan assesses less of your income, does not include spousal income, and caps payments at a much lower level. Anyone who took out a loan in 2014 or later will qualify — with the exception of Parent Plus loans. And it could easily cut your monthly payment in half!

Step 3. Also, while you’re in this process at studentaid.gov, choose a new federal loan servicer — MOHELA, Nelnet, EdFinancial or AidVantage. The new loan servicer will apply the new, lower SAVE payments to your account. AND they will automatically count all previous payments to determine whether your loans are forgiven or how much closer you are to having them forgiven. If your loan is not yet forgiven, they will show your new timeline to forgiveness.

Yes, it sounds complex — and possibly too good to be true. But as of mid-December, more than 3.6 million borrowers have already been approved for nearly $132 billion in loan forgiveness. You could be one of them if you act quickly. And that’s The Savage Truth!

(Terry Savage is a registered investment adviser and the author of four best-selling books, including “The Savage Truth on Money.” Terry responds to questions on her blog at TerrySavage.com.)

©2023 Terry Savage. Distributed by Tribune Content Agency, LLC.