Why You Should Learn About IDR Adjustments
Understanding the IDR Adjustment is crucial for anyone navigating the complex world of student loans, as it opens new avenues for managing and potentially reducing overwhelming debt. One of the biggest changes in student loan accounts over the last year involves something called “IDR” plans.
IDR stands for ‘income-driven repayment’ and has a big impact on student loans (generally, a good one) but it’s something that not all borrowers understand.
What is an IDR Plan?
An income driven repayment plan is a plan that factors in a person’s income when calculating monthly student loan payments.
The old traditional plans simply calculated principal plus interest, and charged the borrower that amount every month, regardless of what he or she earned.
So in theory, under this type of program, you could end up paying 80% or 90% of your take-home pay or more, monthly, to your student loans.
People realized that this was unfair, and the government instituted IDR plan programs to cap the amounts that lenders can get from borrowers who have limited income and means to pay monthly. This includes families with young children. It includes those trying to start out their careers with many headwinds against them. It’s a big deal when it comes to making sure that no one goes hungry or without other basics because of student loan debt.
What is the IDR Adjustment?
The IDR adjustment is a program that takes student loan accounts that may have been mishandled, or accounts where borrowers have spent a long time trying to pay them off unsuccessfully, and applies new standards favorable to the person who is paying off private or federal student loans.
Now, why is the government doing this?
It’s not really a question of “forgiveness” per se. The Biden administration points out that officials are trying to be fair to the people who have taken on student loans!
“Before President Biden took office, it was virtually impossible for eligible borrowers to access the student debt relief they rightfully earned,” said U.S. Secretary of Education Miguel Cardona in a press statement announcing the adjustment. “The data released today once again make clear that the Biden-Harris Administration’s relentless efforts to fix the broken student loan system are paying off in a big way, with more than 3.6 million borrowers now approved for nearly $132 billion in loan forgiveness. This level of debt relief is unparalleled, and we have no intention of slowing down. So in other words, the government is not doing this just to be nice. They are trying to correct problems that have led to people paying millions of dollars more than they should on student loans over time, sometimes due to student loan servicer errors.
Eligibility Criteria for IDR Account Adjustment
The people who owe money on federal student loans or other private student loans should know about what IDR means, and how it’s used. Recently, news came out about an ‘IDR adjustment’ that has already helped many borrowers to get their debt erased or modified, with an estimated $5 billion in aid to borrowers. The program was announced last year, and it can help student loan borrowers in a big way. Reporting on this IDR program shows that there are several ways the borrowers can qualify for certain types of loan relief.
Long-Term Borrowers
One avenue for IDR adjustment involves borrowers who have made 20 or 25 years of payments, or 240 – 300 monthly payments under any payment plan. Now, importantly, this includes time spent in forbearance or deferment, and it also includes the three year coronavirus pause. So add all of that time up when factoring in for IDR adjustment eligibility. There is also a shorter timeline for those involved in the PSLF program.
Parent-Plus Program Borrowers
Parent-plus programs will also be eligible – which is good news for households who have worked to put one of their members in line to get a college degree. Again, this is real help to millions of American families who are stressed financially by the contracts around their private or federal student loans. In many cases, they were unfairly charged amounts of money. So adjustments seek to right those wrongs, for borrowers and student loan cosigners as well.
As for student loan servicer offices, the government says this in a response: “It’s unlikely your servicer will have immediate information…” That’s partly because the Department of Education is hands-on in administrating these accounts – but there’s another reason that borrowers are unlikely to hear about these programs from their lenders. It’s because these programs lead directly to borrowers paying less money! Under this program, students can even get refunds on money they overpaid into student loan accounts.
Long-term Implications of IDR Adjustments on Student Debt
None of this is particularly good news for lenders and loan servicers, who have notoriously been very lax in handling millions of student loan accounts. But it’s very important news for borrowers who need to figure out their responsibilities as they try to get ahead of student loan debt.
So look into the IDR adjustment and see if it applies to a particular student loan. Look at student aid resources like the CFPB and other agencies that have borrowers’ interests in mind, and keep watching this blog for more on the newest changes in the student loan industry. Things are surely moving fast, and the tide is turning for those who have wrestled with expensive student loans and felt overwhelmed by big systems. There are real efforts for reform in the student loan world and we will continue to cover them in our blogs and assist borrowers in knowing their rights.
