US Department Loan Fixes Forbearance Rules: What it Means to You

How Forbearance Steering Corrections Help You Pay Off Student Loans Faster

By: Reyna Gobel MBA, MJ

As we’ve been reporting over the past couple of months, federal student loan forgiveness of some sort is possible! Millions of borrowers will get some level of forgiveness now or in the future. If you are either a public service employee or have ever used a temporary payment breaks called forbearance or deferment, you should read this article to find out if forbearance steering or the Public Service Loan Forgiveness waiver will help you.

Here’s what you need to know:

What is forbearance steering?

If you called your federal student loan servicer when having difficulty making payments, you may have been told or “steered” towards forbearance or deferment instead of an income-driven repayment plan. Forbearances and deferments are temporary payment breaks. Income-driven repayment plans (IDR) are based on your income with payments as low as $0. They are often a better choice because the maximum amount of time you can spend in an IDR plan is between 20 and 25 years. Payment breaks don’t get you closer to repaying your loan. IDR plans do. Thus, if you were directed towards payment breaks instead of IDR, you may be paying off your loans for years extra.

How will the Department of Education fix forbearance steering?

To correct forbearance steering, which also includes older deferments (other than while in school) before 2013, the Department of Education is crediting time spent on payment breaks as IDR payments. And it doesn’t matter if you have an IDR plan now, but you should switch if you end up getting a lot of payment credits. For instance, let’s say over the course of your loan, you had cumulated 6 years of forbearances over the life of your loan. Those 6 years would count towards IDR repayment. Depending on the type of IDR program you qualify for, you’d have to accumulate another 14 to 19 years of payments to gain forgiveness. Some people that have been on forbearance or deferment were never on an IDR plan. Switch now and it will still count. You’ll just want to review all income-driven options on studentloans.gov to find the one that’s best for you.

Does the repayment plan matter?

Some people who are currently or were on forbearance or deferment were never on an IDR plan. Switch now and all your IDR payment adjustments will count. Review your IDR plan options at studentloans.gov to find the one that’s best for you. If confused, read this article or call 8004FEDAID and / or your federal student loan servicers. Since the plan you choose can determine big things such as the length of time until you’re forgiven, make sure you’ve read the information on each plan carefully and it matches what you’re told by phone.

Can you still get forgiveness with FFEL loans?

The adjustment is made on FFEL loans, too. FFEL loans are older federal student loans that were backed by but directly issued by the federal government. the program ended over 10 years ago. You can consolidate to Direct Loans to benefit from the adjustments before the implimentation date that shouldn’t be sooner than January 1, 2023.

How does forbearance steering work for Public Service Loan Forgiveness (PSLF)?

Public Service Loan Forgiveness normally requires 10 years of on-time payments while working for a public service employer while on either an IDR plan or standard 10-year repayment plan. The temporary version doesn’t worry about which repayment plan you were on, as long as you work for a public service employer for 10-years while making payments. With forbearance steering rules, you’ll get IDR credit for temporary payment breaks, too, while working for a public service employer.

How do you find out the total amount of payment credits you have?

The Department of Education is scheduled to do all the calculations in the Fall. You can get a guestimate now by calling past and current federla student loans servicers and  asking how much time you spent on temporary payment breaks.

Note: This article will be updated as we get more details from the federal government, as the exact rules can change.

Bottom Line

Forbearance steering wasn’t a great practice. But now those payment breaks can be credited as IDR to potentially help you pay off your loans faster. Since this ruling only applies to Direct Loans, consolidate your student loans immediately to Direct Lending if you still have FFEL loans.