Student-loan forgiveness deadline extended. Here's how to take advantage.

By Jillian Berman

Borrowers now have until June 30 to consolidate their loans

The Biden administration is giving borrowers more time to take a key step that will make them eligible for a student-loan forgiveness program.

Borrowers with federal student loans that aren't owned by the Department of Education now have until June 30 to consolidate into the Direct Loan program in order to qualify for a debt-relief program focused on borrowers who have been in repayment for at least 20 years. Previously, the deadline to consolidate was April 30.

So far, the administration has approved $49.2 billion in cancellation for 996,000 borrowers under this initiative, known as the income-driven repayment account adjustment program. The announcement comes as advocates and attorneys working with borrowers had expressed concerns about borrowers missing out on relief due to the deadline.

The federal student-loan program allows borrowers to have their debts canceled after at least 20 years of payments through a program known as income-driven repayment. Still, for years, borrowers struggled to access this relief. In April 2022, the Department of Education found that was partly because servicers had pushed borrowers towards payment programs that made them ineligible for forgiveness.

In response, the agency began reviewing borrowers' accounts looking for months that should have counted towards forgiveness. Department of Education officials said Wednesday that the review will be completed in September.

However, a quirk in the federal student-loan system has meant that some borrowers need to take action to qualify for the account adjustment. Before 2010, the bulk of federal student loans were made by outside lenders and guaranteed by the federal government. These are known as Federal Family Education Loans or FFEL loans. During the financial crisis, the government purchased some of the FFEL portfolio to help capitalize lenders.

In 2010, the government ended the guaranteed program. In the years since, all federal student loans have been made directly by the Department of Education to borrowers under what's known as the Direct Loan program.

As a result, there are multiple types of federal student loans with different implications for borrowers. The government has less control over commercially held FFEL loans, or FFEL loans still held by outside entities, which is why borrowers have to consolidate them into government-owned loans to receive certain benefits, like the account adjustment.

Borrowers with Direct Loans and those with Department-owned FFEL loans have had or will have their accounts adjusted automatically through the program. Borrowers with these loans who have repayment for at least 20 years, or 25 years, for those with loans from graduate school, will have or have had their debt canceled through the adjustment. Other borrowers will see their payment counts updated so they're closer to forgiveness.

But borrowers with commercially-held FFEL loans and borrowers with Perkins loans need to consolidate into the Direct Loan program in order to be eligible for the account adjustment.

The account adjustment also provides benefits for borrowers looking to qualify for relief under Public Service Loan Forgiveness. That program allows borrowers who have worked for the government or certain nonprofits for at least 10 years to have their remaining balance canceled. Certain months that previously didn't count towards the 120 needed for relief under PSLF - like months spent in forbearance - count under the adjustment as long as the borrower was working at a qualifying job during that month.

Typically, payments made on FFEL loans, even if they're owned by the Department, don't count towards the 120 needed for PSLF. But if borrowers consolidate into the Direct Loan program before June 30, payments made on these loans will be credited towards relief under PSLF.

Should I consolidate?

To figure out if you need to consolidate to be eligible for the relief programs, log on to studentaid.gov, find your dashboard and navigate to the "Loan Breakdown" section. There you will find a list of your loans. Any loans that begin with the word "Direct" don't need to be consolidated to qualify for the payment count adjustment or PSLF.

Any loans that start with the word "Perkins" need to be consolidated to qualify.

Loans that start with "FFEL" and have a servicer other than "Dept. of Ed" or "Default Management Collection System," need to be consolidated to qualify for the IDR account adjustment.

Any loan that starts with "FFEL" needs to be consolidated in order for payments to count towards PSLF.

How do I consolidate?

To consolidate your loans, log on to studentaid.gov and fill out a consolidation application here. There is no fee to consolidate.

Part of targeted forgiveness effort

The account adjustments are part of a broader effort by the Biden administration over the past few years to make it easier for borrowers who are already eligible for debt cancellation under the law to access that relief. For years, borrowers eligible to have their debt wiped out under Public Service Loan Forgiveness, income-driven repayment, a program for borrowers who are severely disabled and borrowers who have been scammed by their schools have been stymied from accessing debt cancellation due to paperwork challenges.

Through these initiatives, officials have approved more than $155 billion in cancellations for roughly 4 million borrowers.

The White House is also taking a second stab at mass student-debt relief after the Supreme Court struck down its plan last year to cancel up to $20,000 in loans for a wide swath of borrowers. If implemented, the new plan would wipe out some debt for at least 25 million more borrowers. Still, officials could face an uphill battle in implementing the plan before the November election.

-Jillian Berman

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05-15-24 1637ET

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