Student Loan Forgiveness & Discharge

Certain career choices – teachers, nurses, government employees – make you eligible for student loan forgiveness programs. The COVID-19 pandemic also created unexpected help in repaying loans with a payment pause in place until May 1, 2022

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The federal government doesn’t get much credit for its response to crisis situations, but student loan borrowers have good reason to salute the feds for help in repaying their $1.7 trillion debt.

President Biden finally fulfilled a campaign promise to provide relief to Americans still paying student loan debt – forgiving $10,000 of debt for anyone making less than $125,000 and knocking off $20,000 of debt for those who received Pell Grants while in college – but the celebration has been muted because of one lingering question.

Was this legal?

Biden said he is using the authority granted by the HEROES Act of 2003, which gives the executive branch “… authority to change student financial assistance programs during a war, military operation, or national emergency.”

The Bident administration is calling the COVID-19 pandemic a “national emergency.”

That almost certainly will be challenged in a court case, but it may be difficult to overcome. Opponents can only challenge the order if they find someone who has “standing,” in the matter, meaning someone who is being harmed by it.

The opposition, mostly Republicans, have been searching for someone with standing since the day Biden announced the program. So far, the best they can hope is that someone making just over the $125,000 limit or some business, like a bank that will miss out on the fees they would collect on loans forgiven, claims to have 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 the PSLF in 2007 as a response to the ongoing crisis millions of borrowers had repaying student loans. Borrowers who work 10 years in public service jobs – teachers, nurses, government employees, etc. – while making 120 on-time monthly payments, could have the balance of their student loans forgiven.

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What Is Student Loan Forgiveness?

Student loan forgiveness means you are no longer required to make payments on the loans you used to pay for college. It’s an incentive program for those who took out more money than they can afford to repay.

Piling up student debt isn’t exactly a sin. If it were, 45 million people should head to the nearest confession booth. They have a combined $1.7 trillion in sins, er, debt.

It can’t be confessed away, but it can be forgiven. Sort of.

Forgiveness means all or part of your student loan is wiped away. Poof! But the federal government doesn’t just wave a magic wand over everyone’s debt. You must qualify for forgiveness, and depending on which 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 even more difficult. The only way that happens is if you sustain total and permanent disability, or you die.

How To Get Your Student Loans Forgiven: Four Paths

Cancelling student loan debt has been a popular subject 20 years and 47 million people still owe $1.7 trillion.

Biden’s answer instantly becomes the No. 1 option and will provide some form of relief for 91% of the 47 million borrowers, but there are a few other choices as well.

Option No. 2 for student loan forgiveness was having a job that serves the public good. If you’re a teacher or police officer or firefighter or social worker or health care worker or government employee who kept up with payments for 10 straight years, you’ve got a good shot. If you are a sign spinner or pet psychic, forget it.

Option No. 3 is through a repayment plan that is based on your income. You will still have to pay a large chunk of your debt over a 10-year period, but under the current laws, a portion will be forgiven at the end.

Those options are available for federal student loans.

Option No. 4 is called a discharge and it’s available for federal or private loans, but you probably don’t want to go there. A discharge is when you can’t repay the loan for a variety of reasons, like death, disability, fraud, identity theft or bankruptcy.

Here is a look at the four choices and what makes them attractive enough to research.

Biden Student Loan Forgiveness

Biden issued an executive order to eliminate $10,000 in student loan debt for people making less than $125,000 ($250,000 for married couples filing jointly) and an extra $10,000 for those who received Pell Grants while in school.

It means more than 90% of the 47 million student loan borrowers will get some form of relief from the debt they racked up pursuing a college education. The executive order will completely eliminate the debt of an estimated 12 million borrowers and that number could grow 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 the income standards. The DOE says borrowers can expect relief within 4-6 weeks.

Here are some other tidbits of news that you should know if you’re hoping for relief from student loans:

  • If you made payments on your loans during the payment suspension period (any time 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 the current income guidelines, are eligible for forgiveness on loans that originated before July 1, 2022.
  • The Department of Education already has income information on eight million borrowers who submitted it on Income-Based Repayment Plans or on Free Application for Federal Student Aid (FAFSA) forms. Forgiveness for them will be automatic. Others will have to fill out an application form that should be available in October.
  • The final deadline for application for forgiveness will be Dec. 31, 2023.
  • The final “pause” on payment and interest waiver will be Dec. 31, 2022. If your debt wasn’t completely forgiven by then, you are expected to resume payments in January of 2023.
  • The amount forgiven is not considered taxable income on the borrower’s federal tax return. However, some states that have income tax could decide to make you include it.
  • The Federal Reserve says that the average student loan balance is $39,351 and that the median balance (50% higher, 50% lower) is $19,281. Still, more than 25% of 47 million borrowers are expected to have their student loan debt wiped out. That number could grow to 40%.
  • Approximately 90% of the forgiveness program will go to people who earn less than $75,000.
  • Estimates of now much the loan forgiveness program will cost the Treasure very widely. The most conservative estimate comes from the Biden Administration, which claims it will cost about $24 billion a year for 10 years. The Committee for a Responsible Federal Budget puts the cost at $360 billion and says it could grow to $480 billion, depending on how many people take advantage of the income-driven repayment plans.

Public Service Loan Forgiveness Program (PSLF)

Congress created the PSLF program in 2007 to encourage people to pursue noble careers that serve mankind and lessen student debt.

To qualify for the Public Service Loan Forgiveness program (PSLF), you must be a full-time employee (at least 30 hours per week) in a public service job. You must also make 10 years of on-time monthly payments (120 total) after consolidating your federal loans in a qualified repayment program.

This option applies solely to Direct Federal Student Loans. Private student loans are not eligible for the PSLF program.

Before we proceed, here’s a red flag: Applicants from the class of 2007 theoretically were the first ones eligible for loan forgiveness in 2017 and 99% of applications were rejected. That number has gotten slightly better with 2.4% of applications approved as of September 2020, according to the U.S. Department of Education.

Many borrowers discovered their application was rejected because they had been in an incorrect repayment plan. The Department of Education introduced its PSLF Help Tool in 2018 to try and reduce the number of rejected applications.

The PSLF Help Tool allows you to search for qualifying employers and has a series of question related to the program’s requirements that should help steer borrowers through the eligibility process.

If you are deemed ineligible because some or all of your payments were not made under a qualifying plan, you might still be eligible through Temporary Expanded Public Service Loan Forgiveness.

So, if you think you might qualify, it would pay for you to pursue forgiveness. It might eventually pay off nicely.

Public Service Jobs that Qualify for Public Service Loan Forgiveness:

Any job in a government organization at the federal, state, local or tribal level qualifies for PSLF. Working for not-for-profit organizations that are designated tax-exempt under Section 501(c)(3), also qualifies.

Other not-for-profit organizations that are not tax-exempt, but do provide a qualifying public service, such AmeriCorps and Peace Corps volunteers. The most common public service careers are in education, law enforcement, health, public law, and veterinary medicine.

If you question whether your job qualifies, use the PSLF Help Tool for answers.

Repayment Plans that Qualify for Public Service Loan Forgiveness:

There are several repayment plans that qualify under the PSLF program, including Income-Based Repayment Plan (IBR); Income-Contingent Repayment Plan (ICR); Pay As You Earn Repayment Plan (PAYE); and Revised Pay As You Earn Repayment Plan (REPAYE).

Note that the 10-year Standard Repayment Plan also is considered a qualifying plan, but because it is a 10-year plan, if you make on-time payments, there won’t be any funds left to forgive. If you plan to enroll in a PSLF program, you need to enroll in a repayment plan that extends your loan term beyond 10 years.

How to Apply for Public Service Loan Forgiveness

To apply for PSLF, you must fill out an Employment Certification Form every year and make pay stubs, W-2 forms or other documentation available as requested.

If you have met the repayment requirements, submit a PSLF application to the Department of Education. If it’s approved, the remaining balance of your loan will be forgiven.

But be aware, the whole PSLF program is in limbo until President Biden or Congress submit a plan for changing the program. It’s possible that monthly payments would also be slashed. People earning less than $25,000 a year and couples earning less than $50,000 would pay nothing toward their loans until their incomes rose above those levels.

Teacher Loan Forgiveness Program

The Teacher Loan Forgiveness program was created in 1998 to encourage teachers to take jobs at elementary schools, secondary schools and educational service agencies that serve low-income families. The U.S. Department of Education publishes the list of low-income elementary schools and secondary schools each year.

You need to teach full-time at a qualifying school for five full and consecutive years. Then you are eligible to have from $5,000 to up to $17,500 in loans forgiven.

Only direct subsidized and unsubsidized loans qualify. PLUS loans do not qualify. 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 Forgiveness for Nurses

Registered nurses, nurse practitioners and members of nursing faculty, who work in high-need population areas or areas where there is a critical shortage could qualify to have up to 85% of their loans forgiven under the NURSE Corps Loan Repayment Program.

Qualified candidates can have 60% of their student loans forgiven for working two years in an underserved area. Another 25% could be forgiven for working three years.

Some states also offer loan repayment assistance. Go to the Loan Forgiveness for Nurses website to see if yours is one of the 33 states that has one and what the eligibility requirements are.

Loan Forgiveness for Doctors

The healthcare professions, especially physicians, dentists, pharmacists and mental healthcare workers, have several options, both national and local, to receive loan forgiveness.

The requirements and the amount forgiven vary dramatically, depending upon which program you enter. Check out the links to see the amount of loan forgiveness available and requirements for Army doctors; Indian Health Services, National Institute of Health, as well as state-by-state programs.

Loan Forgiveness for Lawyers

There are about a million jokes about lawyers being bloodsuckers on society, but the federal loan program begs to differ. There is a financial incentive for lawyers to practice in public service or government offices in order to have some portion of their law school loan forgiven.

For example, the Department of Justice provides up to $60,000 in loan forgiveness for lawyers who work there for at least three years. The Air Force Judge Advocate program offers up to $65,000 in loan forgiveness.

The best place to start looking might be your own law school, since several colleges forgive some or all of the student loans for students who make less than $60,000 a year.

That amount varies, so check with your school to get actual requirements and amount forgiven. If you can’t qualify for a forgiveness program, look into refinancing your law school debt.

Loan Forgiveness for Military

Each branch of the military has programs that help qualified members pay off their student loans, but the loan amounts forgiven and the requirements that must be met vary dramatically.

Visit the Complete Guide to Military Student Loan Forgiveness and Repayment and find the program that best suits your situation and branch of the military.

Federal Perkins Loan Cancellation

Federal Perkins Loans have a separate forgiveness program because your school is the lender, not the federal government. To apply, contact the financial aid office at the school that administered your Perkins Loan and request the application forms. You need to be a full-time employee in a qualified career.

Qualifying Perkins Loan Forgiveness Jobs:

  • Soldier in hostile fire or imminent danger pay areas
  • Firefighter
  • Law enforcement or corrections officer
  • Nurse or medical technician
  • VISTA or Peace Corps volunteer
  • Librarian with a master’s degree (employed by Title 1 eligible schools or public libraries that serve those schools)
  • Attorney employed in a federal public or community defender organization
  • Employee for public or nonprofit organization that serves high-risk children and their families from low-income communities
  • Staff member for educational component of the Head Start program
  • Staff member for a state-licensed or regulated pre-kindergarten or child care program
  • Professional provider of early intervention services for the disabled
  • Speech pathologist with a master’s degree (employed by Title 1 eligible schools)
  • Special education teacher for children with disabilities in public, other nonprofit schools or educational service agency
  • Teacher in a field designated by the state as teacher shortage areas (math, science, foreign language, bilingual education etc.)
  • Teacher in a designated educational service agency that serves students from low-income families
  • Faculty member at a tribal college or university

You can have up to 100% of your Perkins Loans cancelled or broken down over five years. 15% per year for the first and second year, 20% for the third and fourth years, 30% for the fifth year.

Income-Based Repayment Plan (IBR) Loan Forgiveness

The third type of loan forgiveness is based on how long you make on-time payments, under a qualifying repayment plan. You do not need to be working in a specific career field to qualify for loan forgiveness based on your repayment history.

Generally, you will make on-time payments for 20 or 25 years, depending on the repayment plan. The remaining loan balance is forgiven after that period of time. Be aware the amount forgiven is considered taxable income.

The Pay As You Earn Repayment Plan qualifies you for loan forgiveness after 20 years of on-time payments. This repayment plan will generally offer you the lowest monthly payment. To enroll in this repayment plan, you must demonstrate a financial hardship. You may remain in the program, however, after the hardship has resolved.

The Revised Pay As You Earn repayment plan is similar to the PAYE plan, only you don’t need to demonstrate financial hardship to qualify for the program.

The Income-Contingent, or Income-Based Repayment Plans qualify you for loan forgiveness after 25 years of on-time payments.

Information for applications for Income-Based Repayment can be found at StudentLoans.gov. You will need documentation on personal and financial information. Your loan servicer also can provide an application.

Forgiveness based on 20 or 25 years of on-time payments is only available to Federal Student loans. Private student loans do not qualify.

Student Loan Discharge

There’s one additional way to achieve student loan forgiveness which is called discharge. It is generally awarded by a judge and can apply to both Federal and private student loans. Discharge is granted under extremely rare circumstances.

Circumstances for Student Loan Discharge

  • Permanent disability or death
  • Victim of identity theft
  • Unauthorized signature of the loan by the school without your knowledge
  • False certification of student eligibility
  • Unpaid refund, which is when you withdrew from school and it didn’t return the required loan funds to your loan servicer
  • School closure while you were enrolled

Discharging student loans through bankruptcy is extremely rare. It is technically not impossible, but demonstrating undue hardship is very difficult. Read more about the differences between forgiveness and discharge.

Student Loan Forgiveness Alternatives

The qualifying standards for student loan forgiveness eliminates many of the 45 million borrowers, but there are other avenues to pursue that might make repaying your debt a little less challenging.

The most obvious one for federal loans 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 aren’t required to pay much.

The historically low interest rates in 2020 were a prime time for borrowers to examine whether refinancing their student loans made sense. Some borrowers were able to get rates at 3% APR and that reduced their monthly payment to a manageable level. Be aware, however, that if you refinance a federal student loan, you will lose the many options federal programs offer.

If your money crunch is temporary, you can ask that your loans be deferred or place in forbearance. This allows you time to reorganize financially so you can meet monthly payment responsibilities.

About The Author

Bill Fay

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].

Sources:

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  3. N.A. (ND) 5 Things to Know About Current Repayment Flexibilities and Your Federal Student Loans. Retrieved from https://studentaid.gov/articles/5-repayment-flexibilities/
  4. N.A. (2017, January 14) 4 Loan Forgiveness Programs for Teachers. Retrieved from https://www.ed.gov/content/4-loan-forgiveness-programs-teachers
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  6. Whistle, W. (2019, December 6) The Problem With Public Service Loan Forgiveness? It’s Mostly Working. Retrieved from https://www.forbes.com/sites/wesleywhistle/2019/12/06/the-problem-with-public-service-loan-forgiveness-its-mostly-working/?sh=11e34eae216c
  7. Green, E. and Cowley, S. (2019, November 28) Broken Promises and Debt Pile Up as Loan Forgiveness Goes Astray. Retrieved from https://www.nytimes.com/2019/11/28/us/politics/student-loan-forgiveness.html
  8. N.A. (ND) Student Loan Forgiveness (and Other Ways the Government Can Help You Repay Your Loans). Retrieved from https://studentaid.gov/articles/student-loan-forgiveness/