Student Loan Forgiveness Guide

In the face of overwhelming student loan debt, a crisis affecting over 45 million federal student loan borrowers in the U.S., the Biden administration rolled out an unprecedented student loan forgiveness plan on August 24, 2022. This initiative offers a potential lifeline by forgiving up to $20,000 in Direct Loans and Federal Family Education Loans, providing significant debt relief for many who meet the annual income requirements.

Since November, however, the fate of this groundbreaking plan to alleviate student loan debt hangs in the balance. Barred by rulings from lower courts, it now rests precariously with the Supreme Court’s conservative justices. A judgment is on the horizon, carrying weighty consequences for:

• Borrowers

• Loan servicers

• Non-profit organizations dedicated to financial aid advocacy.

Despite these challenges, the possibility of large-scale loan cancellation and loan discharge remains a hot topic of immense interest and concern. This comprehensive guide endeavors to unravel:

• The complex intricacies of the proposed plan

• Its potential impact on borrowers’ monthly payments

• Eligibility requirements

• The role of student loan servicers in managing loan balances.

Whether you’re:

• A borrower grappling with the implications of a payment pause

• An educator exploring teacher loan forgiveness options

• Or simply an individual seeking an overview of types of federal student loans

This guide aims to shed light on your most pressing concerns.

Ahead, we’ll review the specifics of Direct Consolidation Loans, income-driven repayment plans, the Public Service Loan Forgiveness Program, forgiveness waivers, and more so you can get the debt relief you’re seeking.

Even if the Supreme Court strikes down Biden’s broad debt cancellation plan, several other forgiveness programs are available, particularly for federal student loan borrowers.

Two notable examples are the Public Service Loan Forgiveness Waiver and the Income-Driven Repayment Waiver.

These programs have already wiped out over $60 billion in loans for hundreds of thousands of individuals. More cancellations are anticipated as the Department of Education continues reviewing borrower accounts over the coming months.

There are several types of student loan forgiveness programs, which can be broadly categorized into:

• Federal Loan Forgiveness: These are the most commonly used programs, typically targeting professions such as teaching and nursing, designed to ease the loan burden for those dedicating their careers to public service.

• State-Specific Loan Forgiveness: Many states offer their own forgiveness programs with requirements typically including state residency and employment in certain public-sector careers. Some state student loan forgiveness programs may dictate specific work locations, especially for teachers, where service in underserved communities may be required.

• Profession-Specific Forgiveness: Some private employers offer student loan forgiveness to attract and retain employees. These programs operate similarly to federal and state initiatives.

Each program varies in specifics, but the common goal is to provide debt relief to those needing it most. Unfortunately, private lenders offer few opportunities for private student loan forgiveness.

Facing considerable legal barriers, President Biden’s ambitious student loan forgiveness plan hangs in the balance.

The Supreme Court’s decision, expected in late June, will set a pivotal precedent concerning executive action and legislative authority in economic policymaking, particularly for student loan policy.

The plan seeks to alleviate the financial burden for millions of student loan borrowers. Still, opponents question its constitutionality and assert that student loan forgiveness legislation should solely reside within Congress’s domain.

• How it Works: The proposal is to forgive up to $10,000 in debt for borrowers earning less than $125,000 in adjusted gross income. Pell Grant recipients are eligible for an additional $10,000 in relief.

• Who’s Eligible to Apply: The relief plan potentially benefits around 43 million people in the U.S., especially those earning under $125,000 a year and Pell Grant recipients.

• Which Loans Are Eligible: Eligible loans include William D. Ford Federal Direct Loan Program loans, Federal Family Education Loan Program loans held by the federal government or in default at a guaranty agency, and Federal Perkins Loan Program loans held by the Education Department.

• How to Apply: Details regarding the application process will be provided if the plan receives approval.

• When to Apply: Due to the ongoing legal proceedings, the timeline for application remains undetermined. An application period will likely be set once the plan is approved.

• Where to Apply: Applications will be available on the Federal Student Aid website if the Court approves the plan.

Related: Student Loan Forgiveness for Healthcare Workers

While the fate of Biden’s student loan forgiveness plan is uncertain, borrowers have other options for help with their loans.

• Keep Your Payments on Hold: Federal student loan payments are suspended due to COVID-19, and interest is not accruing. This suspension is active until 60 days after the litigation around the forgiveness plan resolves.

• Compare Alternate Repayment Plans: Explore different income-driven repayment plans, which cap monthly payments at a percentage of your discretionary income and forgive remaining debt after 20 or 25 years. The Biden administration is considering a new repayment option to lower payments to 5% of discretionary income.

• Explore Other Forgiveness Options: Check out the Public Service Loan Forgiveness program, which forgives debt for individuals working for the government or certain nonprofits after a decade of payments. Also, look into various state and occupation-based forgiveness programs.

• Seek Deferment or Forbearance: If you’re experiencing financial hardship or unemployment when bills resume, consider applying for an economic hardship or unemployment deferment. Alternatively, a forbearance can suspend your bills, though interest will accrue.

• Consider Bankruptcy: The Biden administration is pushing for reforms to make discharging student debt easier in bankruptcy for those severely burdened by student loans. But student loan bankruptcy should be a last resort due to its serious impact on your credit score.

Related: First-Time Home Buyer Student Loan Forgiveness

Several federal student loan forgiveness programs offer relief to borrowers under specific circumstances. Here’s an overview of some of these programs.

• Income-Driven Repayment: IDR plans cap your monthly loan payments at a percentage of your discretionary income. Any remaining loan balance is forgiven after 20 to 25 years of qualifying payments. Recently, a one-time review of past payments was announced, which could lead to immediate debt cancellation for thousands of borrowers and bring millions of others closer to forgiveness.

• Borrower Defense: The Borrower Defense. to Repayment program offers debt relief to borrowers who were defrauded by their schools. The Department of Education has discharged billions of dollars of debt for students of certain for-profit colleges that have closed or misrepresented job prospects. It is also working on streamlining the review process for pending claims.

• Public Service Loan Forgiveness: This program discharges the debt of borrowers who have made 120 qualifying payments while working for the government, public schools, or hospitals. Recently, a new waiver was issued to ease the application process, leading to an increase in the approval rate and discharges totaling $10 billion. The department plans to make certain aspects of this waiver permanent.

• Total and Permanent Disability Discharge: The Total and Permanent Disability Discharge is for borrowers who can’t work due to a physical or mental impairment. Over $8.5 billion of debt has been discharged for over 400,000 qualified disabled borrowers. The department has suspended the requirement for borrowers to provide annual earnings documentation for three years post-discharge due to the pandemic, and this has been extended indefinitely. Here’s what disabilities qualify for student loan forgiveness.

• Teacher Loan Forgiveness: This program provides forgiveness for teachers who have been employed full-time in a low-income school for five consecutive years. It can forgive up to $17,500 of your Direct or FFEL Stafford Loans (i.e., Subsidized or Unsubsidized Loans) but not PLUS or Perkins Loans.

The aforementioned programs and others provide various paths to student loan forgiveness. Eligibility criteria and forgiveness amounts vary, so borrowers should carefully consider their options and seek advice if necessary.

Related: First Responder Student Loan Forgiveness

Securing student loan forgiveness involves meeting several criteria set forth by the U.S. Department of Education. Below, we outline some of the most common requirements.

• Loan Type: Generally, only federal student loans are eligible for forgiveness programs. These include Direct Loans, Perkins Loans, and FFEL Loans. Private student loans are typically not eligible for federal forgiveness programs.

• Repayment Plan: Some forgiveness programs require you to be enrolled in a specific repayment plan. For instance, Public Service Loan Forgiveness requires you to be on an income-driven repayment plan.

• Employment: Many forgiveness programs are tied to specific professions or public service jobs. For instance, Teacher Loan Forgiveness requires five consecutive years of employment at a low-income school. PSLF requires employment with a qualifying public service employer.

• Number of Payments: Some programs require a certain number of qualifying payments before a loan can be forgiven. For instance, PSLF requires 120 qualifying payments.

• Status of Loan: Defaulted loans are generally not eligible for forgiveness. There’s no specific defaulted student loan forgiveness program. Borrowers must make arrangements to get out of default before applying for loan forgiveness.

• Proof of Need or Eligibility: Some programs, like the Total and Permanent Disability Discharge, require proof of the disability from a certified medical professional. Similarly, the Borrower Defense program requires evidence that a school misled you, engaged in other misconduct, or violated certain state laws.

Remember, each student loan forgiveness program has its specific requirements and processes. You can find those requirements and the applications on StudentAid.gov.

Related: Student Loan Forgiveness for Federal Employees

When you look at President Biden’s plan to forgive student loans and the argument that followed, it’s clear that there are both big pros and cons to student loan forgiveness.

Here are some of the primary arguments in each camp:

Pros of Student Loan Forgiveness

• Empathetic Approach: Student loan forgiveness is seen as a compassionate and empathetic response to a crisis that has been growing over several decades. Advocates argue that it’s unfair to expect students to shoulder a burden that has increased exponentially over time, particularly when faced with a job market that doesn’t offer wages commensurate with the rising cost of education.

• Addressing a Current Crisis: Despite the imperfections of student loan forgiveness, supporters maintain that it’s a step in the right direction. It may not fully resolve the issue of access to higher education or financial equality, but it’s seen as a crucial starting point in addressing the crisis.

• Promoting Higher Education as a Public Good: Advocates emphasize that higher education should be seen as a public good. The principles of equitable access to education and supporting citizens’ betterment are touted as reasons to consider the forgiveness policy, regardless of whether it’s the most progressive option.

Cons of Student Loan Forgiveness

• Perceived Unfairness: Critics argue that student loan forgiveness can seem unfair to those who’ve already repaid their loans. They point out that individuals who take on debt should be responsible for repaying it, suggesting that forgiveness could discourage future borrowers from fulfilling their obligations.

• Potential for Worsening Inflation: Some experts express concern that student loan forgiveness could exacerbate current economic challenges, such as inflation. They argue that the policy could stimulate demand in an already heated economy, thereby leading to even higher inflation.

• Not All Borrowers Need Help: There’s a sentiment that many individuals with student loans can pay them off without assistance. Critics note that student loans often enable higher education, leading to higher lifetime earnings. They argue that forgiveness may disproportionately benefit higher-income borrowers who have taken on larger loans but are perfectly capable of repaying them.

It’s essential to recognize that these pros and cons reflect a range of perspectives on student loan forgiveness. Each side presents valid arguments, underscoring the complexity of the issue and the need for careful consideration and nuanced policymaking.

Knowing how to navigate the student loan forgiveness process is key to relieving the burden of student debt. Let’s review how you might qualify for student loan forgiveness and how to apply.

• Biden’s Plan: President Biden’s proposed student loan forgiveness plan was briefly available, allowing 26 million people to either apply or automatically qualify based on previous information provided to the Education Department. Notably, over 16 million of these applications were approved before the program was halted due to ongoing litigation.The plan could benefit over 40 million borrowers if approved, predominantly aiding those earning less than $75,000 per year. But it remains on hold due to legal battles, preventing the implementation and the much-needed relief it promises to provide. For detailed data on this topic, visit this White House Fact Sheet.

• Income-Driven Repayment: If you’re enrolled in an IDR plan, the remaining balance of your loans will be forgiven after 20-25 years of qualified payments. To apply, you must submit an IDR application to your loan servicer and recertify your income each year.

• Borrower Defense: This program offers loan relief to students defrauded by their colleges. You need to fill out the Borrower Defense to Repayment application and provide evidence of your school’s misconduct.

• Public Service Loan Forgiveness: To be eligible for PSLF, you must make 120 qualifying payments while working full-time for a qualifying employer. To apply, you need to fill out and submit the PSLF form to FedLoan Servicing.

• Total and Permanent Disability: TPD discharges federal student loans for borrowers who are totally and permanently disabled. To apply, you’ll need to provide documentation of your disability to the U.S. Department of Education.

• Teacher Loan Forgiveness: Teachers who have worked full-time in a low-income school or educational service agency for five consecutive years may be eligible for this program. To apply, complete the Teacher Loan Forgiveness application after fulfilling the five-year teaching requirement.

For a comprehensive step-by-step guide on each of these processes, please refer to our detailed article on how to apply for student loan forgiveness 2023.