April 30 deadline looms for student loan forgiveness

Californians who obtained federally backed student loans from private banks can have some or all of their remaining debt forgiven by the Biden administration, but they need to act fast: The deadline for qualifying is Tuesday.

The relief is available for students enrolled in income-driven repayment plans or the Public Service Loan Forgiveness program. It’s also available for some parents who borrowed through the Federal Family Education Loan program.

This is not a new initiative, however — instead, it’s the last chance to participate in one of the administration’s first and most successful efforts to reduce the mountain of student debt.

The Education Department launched the Income Driven Repayment One-Time Adjustment initiative in 2022 to address complaints about loan servicing companies losing track of payments, not giving borrowers proper credit for their work in public-service jobs, and steering struggling borrowers into costly forbearance or deferment programs instead of payment plans based on their income.

After completing its review of payment records last year, the department granted all or partial forgiveness automatically to the borrowers who qualified — no application was required. The Education Department estimated that 3.6 million borrowers would receive credit for at least three additional years of payments, moving them that much closer to having their remaining debt wiped out.

Under income-driven repayment plans, borrowers pay a monthly amount that’s a percentage of their income, regardless of the size of their debt. Those who stay current on their payments have all the remaining debt canceled after 10 years if they’re in the Public Service Loan Forgiveness program; otherwise, those in income-based plans would have their debt canceled after 20 to 25 years of payments.

The recalculation applied only to loans issued directly by the federal government, however. That left out borrowers with federally backed loans issued by banks through the Perkins Loan, Federal Family Education Loan and Health Education Assistance Loan programs.

Those borrowers have one last chance to qualify. for a one-time adjustment. If they combine their federally backed loans into a federal direct consolidation loan before Wednesday, their previous payments on those loans will automatically be eligible for review.

Borrowers can apply online to consolidate their loans at the studentaid.gov website. To meet the deadline, the application just has to be submitted by the end of the day Tuesday — the approval can come later, said Celina Damian, the student loan servicing ombudsperson for the California Department of Financial Protection & Innovation.

As part of the one-time adjustment, the Education Department gives borrowers credit for the entire period when repayments were paused because of the pandemic. That’s a little more than three years’ worth of credits.

In addition, the department is giving credits for payments made under any other type of repayment plan that the borrower was in before opting for an income-based plan. And it credits borrowers for months they spent in deferment or in lengthy periods of forbearance.

Borrowers whose adjusted payment counts push them over the 20-year (for most undergraduate loans) or 25-year (for graduate loans) thresholds will automatically have their remaining debt forgiven.

Although the Supreme Court rejected President Biden’s bid to provide debt relief to roughly 40 million borrowers in 2023, the administration has two other major efforts available or in the works. It has proposed a set of rules that would shrink the debt owed by about 30 million borrowers, and it has rolled out a new income-based repayment plan that has lower monthly payments and accrues less interest.