With President Biden’s student loan forgiveness program dominating news headlines as the federal courts debate the legality of his debt relief plan, you may be wondering, “What is student loan forgiveness?”
If that’s the case for you, you’re in the right place. Keep reading to learn about what student loan forgiveness is and what programs you might qualify for.
How Student Loan Forgiveness Works
Student loan forgiveness wipes out all or part of your remaining student loan balance for federal loans only. However, there are strict eligibility requirements to qualify for federal student loan forgiveness. In fact, most debt relief are only offered for public service occupations.
Student Loan Forgiveness Programs to Consider
Public Service Loan Forgiveness
Public Service Loan Forgiveness (PSLF) is a program that offers debt relief for qualifying individuals who work in public service, whether that be volunteer work, medical practice, or other public sector work.
To qualify for Public Service Loan Forgiveness, you must :
- Have paid the minimum amount due on time for 120 payments (10 years total).
- Have worked 10 years in a public sector role.
- Have borrowed Direct Loans or consolidated their federal loans into Direct Loans.
Loan Forgiveness Through Repayment Plans
Certain federal repayment plans offer loan forgiveness if enough qualifying payments are made on the loan. While this may take substantially longer than federal loan forgiveness programs, borrowers will still be able to receive debt relief.
Income-Based Repayment
Income-based repayment (IBR) is a repayment plan where the maximum monthly payments are between 10% to 15% of your discretionary income.
You must have 20-25 years of qualifying payments under your belt to be eligible for loan forgiveness.
Income-Contingent Repayment
Income-contingent repayment (ICR) is a repayment plan that is (hence the name) contingent on your income. Your monthly payments are recalculated every year based on your family size, outstanding loan balance, and gross income. Generally, your monthly payments will be around 20% of your discretionary income.
You must have 25 years of qualifying payments to be eligible for loan forgiveness.
Pay As You Earn (PAYE)
Pay As You Earn (PAYE) is a repayment plan where your monthly payments are 10% of your discretionary income and capped at how much you would pay on a regular, 10-year repayment plan.
The main benefit of the PAYE repayment plan, however, is that the government will pay 100% of the unpaid interest on your subsidized loans for the first three years.
To qualify for PAYE, you must demonstrate financial hardship and have received a federal loan after October 1, 2007. You must then make 20 years of qualifying payments to be eligible for forgiveness.
Revised Pay As You Earn (REPAYE)
REPAYE is the revised version of PAYE that has slightly different terms. The monthly payments for the REPAYE plan are 10% of your discretionary income with no cap, meaning that you could be paying more than you would on a standard 10-year plan.
With this plan, the federal government will:
- Pay 100% of the unpaid interest on your subsidized loans for the first three years; or
- Pay 50% of the unpaid interest on your subsidized loans and unsubsidized loans after the first three years.
Anyone with federal loans can be eligible for the REPAYE plan. You must then make 20 years of qualifying payments to be eligible for debt relief for undergraduate loans, or 25 years of qualifying payments for graduate loans.
Specialized Loan Forgiveness
If you have a specialized career, you may be eligible for loan forgiveness programs, such as:
- Army National Guard Student Loan Repayment Program: If you’re a member of the Army National Guard you may qualify to have $50,000 shaved off of your federal loans. You must have Direct, Perkins, or Stafford loans.
- Teacher Loan Forgiveness Program: If you are a full-time teacher who works in a low-income school or other eligible educational agency, you may be eligible for $5,000 to $17,500 in loan forgiveness. You must have worked full-time for a qualifying position for five consecutive years, and have Direct or Stafford loans.
- Segal AmeriCorps Education Award: If you were a part of the AmeriCorps VISTA, AmeriCorps State, or AmeriCorps NCCC, you may be eligible to receive up to the maximum Pell Grant award to pay off your federal student loans.
Borrower Defense
If your school significantly deceived, defrauded, or scammed you, you may be eligible for borrower defense to loan payment forgiveness.
If you qualify for borrower defense, you will receive loan discharge. Loan discharge, unlike loan forgiveness, immediately stops your loan payments and may even allow you to receive a refund on your repayments.
To have your student loans discharged through borrower defense, you need to file a claim to the Department of Education with evidence that you were deceived or misled by your school.
Who Qualifies for Student Loan Forgiveness?
Eligibility for student loan forgiveness depends on the program being offered.
If you work in the public sector and have made enough qualifying payments, you may be eligible for the Public Service Loan Forgiveness program. On the other hand, if you are a teacher who’s worked for five consecutive years at a low-income school, you may be eligible for the Teacher Loan Forgiveness program.
If you feel that your career may qualify for loan forgiveness, be sure to check your eligibility with the Federal Student Aid office.
Closing Thoughts From the Nest
While the future of the Biden administration’s student loan relief program is still uncertain, you can subscribe to the Department of Education’s email updates to stay up-to-date with the latest information.
Beyond Biden’s comprehensive loan forgiveness plan, remember there are still opportunities for you to have your federal student loans forgiven with existing programs.