Student Loan Forgiveness & Discharge
The federal government doesn’t get much credit for its response to emergency situations, but student loan borrowers have good reason to salute the feds for helping them pay off their $1.7 trillion in debt.
President Biden has finally fulfilled a campaign promise to provide relief to Americans paying off student loan debt — forgiving $10,000 of debt for those making less than $125,000 and ending $20,000 of debt for those who received Pell Grants while in college — but the celebrations have been muted. . Due to a lingering question.
Was this legal?
Biden said he was exercising authority granted by the HEROES Act of 2003, which gives the executive branch the authority to “…modify student financial aid programs during times of war, military operations or national emergencies.”
The Biden administration is calling the COVID-19 pandemic a “national emergency.”
It will almost certainly be challenged in a court case, but it can be difficult to overcome. Opponents can challenge the order only if they find someone who has “standing” in the matter, meaning someone who is being harmed by it.
The opposition, mostly Republicans, has been searching for a successor since the day Biden announced the program. So far, the best they can hope for is that someone over the $125,000 limit or some business, such as a bank that will miss the fees they’ll collect on a forgiven loan, claims standing.
If it stands, Biden’s student loan forgiveness plan would join the ranks of other forgiveness options, most notably the Public Service Loan Forgiveness (PSLF) program.
The federal government created PSLF in 2007 as a response to the ongoing crisis, with millions of borrowers defaulting on student loans. Borrowers who work 10 years in public service jobs – teachers, nurses, civil servants, etc. – can have their student loan debt forgiven while making 120 on-time monthly payments.
What is Student Loan Forgiveness?
Student loan forgiveness means you no longer have to make payments on the loans you were paying for college. It is an incentive program for people who have borrowed more than they can afford to pay.
Accumulating student debt isn’t exactly a sin. If it were, 45 million people would have to head to the nearest confession booth. They have a combined $1.7 trillion in sins, er, debt.
It cannot be admitted, but it can be forgiven. Sort.
Forgiveness means that all or part of your student loans are erased. Poof! But the federal government doesn’t just wave a magic wand over everyone’s debt. You must qualify for forgiveness, and depending on what type of forgiveness you are pursuing, that can be a challenge. To qualify for PSLF, for example, you must have 10 years (120 months) of steady, on-time payments.
Private student loan forgiveness is more difficult. The only way is if you sustain total and permanent disability or you die.
How to Forgive Your Student Loans: Four Paths
Student loan debt cancellation has been a popular topic for 20 years, and 47 million people still owe $1.7 trillion.
Biden’s answer immediately becomes no. 1 option and would provide some form of relief for 91% of the 47 million borrowers, but there are several other options.
Option no. There were 2 jobs for student loan forgiveness that served the public. If you’re a teacher or a police officer or a firefighter or a social worker or a health care worker or a government employee who has continued to pay for 10 consecutive years, you’ve got a good shot. If you’re a sign spinner or a pet psychic, forget it.
Option no. 3 is through a repayment plan that depends on your income. You’ll still have to pay off a large portion of your debt over a 10-year period, but under current law, a portion will be forgiven at the end.
Biden student loan forgiveness
Biden issued an executive order to eliminate $10,000 in student loan debt for people earning less than $125,000 ($250,000 for married couples filing jointly) and an additional $10,000 for those who received Pell Grants while in school.
That means more than 90% of the 47 million student loan borrowers will receive some form of relief from the debt they incurred while pursuing a college education. The executive order would completely eliminate the debt of an estimated 12 million borrowers, and that number could rise to 20 million.
The Department of Education is creating forms that will be distributed in October that will require borrowers to prove they qualify under income standards. The DOE says borrowers can expect relief in 4-6 weeks.
Here are some other tidbits of news you should know if you’re hoping to get student loan relief:
- If you made a payment on your loan during the payment suspension period (anytime after March 13, 2020), you can ask for a refund. Contact your loan servicer for details.
- Direct Loans, Stafford Loans, Federal Consolidation Loans, Grad Plus Loans, Parent Plus Loans and current students whose parents qualify under current income guidelines are eligible for forgiveness on loans originated before July 1, 2022.
- The Department of Education already has income information on eight million borrowers who submitted it on the Free Application for Federal Student Aid (FAFSA) form, or Income-Based Repayment Plans. Forgiveness will be automatic for them. Others will have to fill the application form which should be available in October.
- The final deadline for applying for amnesty will be December 31, 2023.
- The final “break” on payment and interest waivers will be December 31, 2022. If your debt wasn’t completely forgiven by then, you’re expected to resume payments in January 2023.
- The amount forgiven is not considered taxable income on the borrower’s federal tax return. However, some states that have an income tax may decide to include you in it.
- The Federal Reserve says the median student loan balance is $39,351 and the median balance (50% higher, 50% lower) is $19,281. Still, more than 25% of the 47 million borrowers are expected to wipe out their student loan debt. This number can increase to 40%.
- About 90% of the amnesty program will go to people who earn less than $75,000.
- The loan waiver program is currently projected to cost the Treasury very broadly. The most conservative estimate comes from the Biden administration, which claims it will spend about $24 billion per year for 10 years. The Committee for a Responsible Federal Budget puts the cost at $360 billion and says it could rise to $480 billion, depending on how many people take advantage of income-based repayment plans.
How to Apply for Public Service Loan Forgiveness
To apply for PSLF, you must complete an employment certification form each year and provide pay stubs, W-2 forms, or other documentation as requested.
If you have met the repayment requirements, submit a PSLF application to the Department of Education. If it gets approved, your loan balance will be forgiven.
But be aware, the entire PSLF program is in limbo until President Biden or Congress submits a plan to change the program. It is possible that the monthly payments will also be reduced. People earning less than $25,000 per year and couples earning less than $50,000 will pay nothing on their loans until their income rises above those levels.
Teacher Loan Forgiveness Program
The Teacher Loan Forgiveness Program was created in 1998 to encourage teachers to take jobs in elementary schools, middle schools and educational service agencies serving low-income families. The US Department of Education publishes a list of low-income elementary schools and middle schools each year.
You need to have taught full-time for five consecutive years at a qualifying school. Then you are eligible for loan forgiveness ranging from $5,000 to $17,500.
Only direct subsidized and unsubsidized loans are eligible. Not eligible for PLUS loans. There are 13 states that offer some form of loan forgiveness for teachers with varying requirements.
Apply to the program by completing the Teacher Loan Forgiveness Application and submitting it to your loan servicer.
Loan waiver for nurses
Registered nurses, nurse practitioners and nursing faculty members who work in high-need population areas or areas with severe shortages may qualify for up to 85% of their loan forgiveness under the NURSE Corps Loan Repayment Program.
Qualified candidates can have 60% of their student loans forgiven for two years of work in an underserved area. Another 25% can be waived for three years of work.
Some states also offer loan repayment assistance. Visit Nurse’s website for loan forgiveness to see if yours is one of the 33 states that have one and what the eligibility requirements are.
Loan waiver for doctors
Healthcare professions, particularly physicians, dentists, pharmacists and mental health care workers, have both national and local options for obtaining loan forgiveness.
Requirements and waived amounts vary dramatically depending on which program you enter. Check out the links to see available loan forgiveness amounts and requirements for Army doctors; Indian Health Services, National Health Organization, as well as state-by-state programs.
Student Loan Forgiveness Options
The qualifying standards for student loan forgiveness eliminate many of the 45 million borrowers, but there are other avenues to pursue that can make paying off your debt a little less challenging.
The most obvious way to get a federal loan is to sign up for one of the income-based programs. These programs adjust your monthly payment based on your income, so if you’re not making much, you don’t have to pay more.
Historically low interest rates in 2020 made it a prime time for borrowers to check whether refinancing their student loans makes sense. Some borrowers were able to get rates at 3% APR and that reduced their monthly payments to manageable levels. Be aware, however, that if you refinance federal student loans, you’ll lose many of the options federal programs offer.
If your cash crunch is temporary, you can ask for your loan to be deferred or put into forbearance. This gives you time to reorganize financially so you can meet monthly payment obligations.