Although it won’t be a quick fix, the Education Department offers many debt relief options that can clear your balance. Many of these programs require you to meet certain criteria over several years of payments. Three of the most common loan forgiveness programs are listed below.
Note: The IRS won’t send you a tax bill at the end of the year if your loans are erased under these forgiveness or discharge programs. Due to a change in law, student loan forgiveness is tax-free until 2026.
Biden’s student loan cancellation
In August, President Biden announced a broad student debt cancellation plan that covers most Americans with loans. Pell Grant recipients, who are the majority of borrowers and come from low-income households, will get up to $20 thousand in relief. Everyone else will get $10 thousand.
The plan set off a flurry of legal challenges across the country, each singing the same tune: the president lacked the authority to wipe out debt with the stroke of a pen, and the plan is unfair.
The Biden administration cast many of those cases aside, but two persisted and put the proposed relief on hold. The Supreme Court will hear the lawsuits in February and deliver its decision a few months later. Legal experts believe that the justices will rule the plan is illegal. If that happens, borrowers will need to look to other slower but more robust forgiveness options to get their remaining balance forgiven.
Income-driven repayment forgiveness
Federal student loans are unlike any other loan that you’ve borrowed. Your mortgage, car loan, and private student loans all require payments soon after the money is disbursed and generate a monthly bill for an amount that repays the entire loan balance plus interest over a set number of years with few deferment or forbearance options.
In contrast, the government lets you postpone payments until after you leave school. If you can’t afford the bill, you can enroll in one of the department’s income-driven repayment plans that cap your monthly payments at a fraction of your discretionary income. These IDR Plans also promise to write off your remaining balance after 20 to 25 years.
No other debt has that benefit. Not credit cards. Not bank loans. Nothing.
There’s just one problem: IDR Forgiveness was broken.
An investigative report from NPR revealed that over 4 million borrowers had been in repayment for over 20 years, but only 32 had gotten a student loan discharge. The problems were many. Student loan servicers pushed borrowers into long-term forbearances and deferments instead of income-based repayment. They did not warn that consolidating their loans would reset the time needed to get their debt forgiven. And they did not track how many payments a borrower made under an IDR plan.
A fix is on its way. Last April, the Education Department announced a plan to retroactively count payments made under any repayment plan and time spent in certain periods of deferment and forbearance. The department has begun reviewing borrowers’ accounts. It expects to finish its count this summer and provide a status update to borrowers on StudentAid.gov.
About 40 thousand people will have their balance immediately forgiven. Millions more will be pushed several years closer to the finish line.
Related: How the IDR Waiver Works
The IDR Waiver & Account Adjustment is open to all federal student loan borrowers, but parents who borrowed loans to cover their children’s college costs will likely need to consolidate to meet the eligibility requirements. Read more about Parent PLUS Loan Forgiveness During Covid.
Public Service Loan Forgiveness
Full-time employees of government agencies and some nonprofit organizations can get their entire loan balance forgiven tax-free after making 120 qualifying payments. PSLF benefits teachers, firefighters, health professionals, law enforcement personnel, and so on.
Like IDR Forgiveness, the PSLF Program was broken for years. The White House took action last October and made changes that have led to tens of thousands of borrowers getting over $24 billion in relief. More will join them as the department continues reviewing the payment history of PSLF applicants who submitted an employment certification form before the Oct. 31, 2022, deadline.
Related: How the Limited PSLF Waiver Works
All federal student loan borrowers with a public service job are eligible for relief. To qualify, you must have Direct Loans and switch to one of the income-driven repayment plans — Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE). You’ll need to make 120 monthly payments under that plan while working for a qualifying employer. Visit the Federal Student Aid site, StudentAid.gov, to check the type of loans you have and to apply.
Related: Are Parent PLUS Loans Eligible for PSLF?