How can people get rid of their student loan debt—and, more specifically, when is loan forgiveness an option? We don't need another statistic to tell us how deep in student loan debt U.S. college graduates are. Total debt and average debt figures don't mean much, except to say that if the sums you owe keep you up at night, you're in good company. What matters is finding a solution.
- Forgiveness is the best kind of student loan debt relief, but it's hard to come by.
- Income-driven repayment plans and Public Service Loan Forgiveness (PSLF) can erase people's remaining debt after many years of payments.
- Only federal student loans can be forgiven.
- Forgiveness can leave recipients with a big tax bill.
- Forgiveness and forbearance sound similar but are not the same.
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Student Loan Forgiveness: Which Loans Are Eligible?
Only direct loans made by the federal government are eligible for forgiveness. Stafford loans, which were replaced by direct loans in 2010, are also still eligible. If you have other kinds of federal loans, you might be able to consolidate them into one direct consolidation loan, which may give you access to additional income-driven repayment plan options. Non-federal loans (those handled by private lenders and loan companies) do not qualify for forgiveness.
In 2020, borrowers with federal student loans who attended for-profit colleges and sought loan forgiveness because their school defrauded them or broke specific laws were dealt a setback when then-President Trump vetoed a bipartisan resolution that would have overturned new regulations that make it much more difficult to access loan forgiveness. The new, more onerous regulations went into effect on July 1, 2020.
As of Aug. 23, 2022, under the Biden administration, the United States Department of Education has approved $32 billion in student loan debt relief for over 1.6 million borrowers, a significant number of whom were victims of for-profit college fraud.
The Biden administration announced measures to help student loan borrowers because of the COVID-19 pandemic. This includes debt cancellation of up to $20,000 for recipients of Pell Grants with loans through the Department of Education and as much as $10,000 for non-Pell Grant recipients. This is in addition to student loan forbearance that expires on Dec. 31, 2022.
Income-Driven Repayment Plan Forgiveness
For federal student loans, the standard repayment period is 10 years. If a 10-year repayment period makes your monthly payments unaffordable, you can enter an income-driven repayment (IDR) program.
Income-driven programs stretch out payments for a term of 20 or 25 years. After that term, assuming you've made all of your qualifying payments, whatever balance is left on the loan is forgiven. Payments are based on your household income and family size, and they will typically be capped at 10%, 15%, or 20% of your discretionary income, depending on the plan.
Below are the four types of IDR plans offered by the U.S. Department of Education, in addition to the repayment periods and monthly payments of each:
- Revised Pay As You Earn Repayment (REPAYE) Plan: The repayment period for this plan is either 20 years (if all loans under the plan were received for undergraduate study) or 25 years (if any loans under the plan were received for graduate or professional study). Monthly payments are typically 10% of your discretionary income income.
- Pay As You Earn Repayment (PAYE) Plan: The repayment period for this plan is 20 years. Monthly payments are typically 10% of your discretionary income income, but they cannot exceed the 10-year Standard Repayment Plan amount.
- Income-Based Repayment (IBR) Plan: If you didn't already have an outstanding balance when you received a direct loan or Federal Family Education Loan (FFEL) on or after July 1, 2014, then the repayment period for this plan is 20 years, and monthly payments are typically 10% of your discretionary income. Conversely, if you did have an outstanding balance when you received a direct loan or an FFEL on or after July 1, 2014, then the repayment period for this plan is 25 years, and monthly payments are typically 15% of your discretionary income. In both cases, monthly payments cannot exceed the 10-year Standard Repayment Plan amount.
- Income-Contingent Repayment (ICR) Plan: The repayment period for this plan is 25 years. Monthly payments are either 20% of your discretionary income or the equivalent amount for a repayment plan with a fixed 12-year payment (adjusted according to your income), whichever is smaller.
An IDR plan can be a good option for people in low-paying fields who have large amounts of student loan debt. If you're considering an IDR, it's important to keep in mind that eligibility varies between plans, with some types of federal loans being ineligible for repayment under all but one plan. Additionally, you will have to annually "recertify" your income and family size, even if neither have changed from one year to another.
How to Apply
Applying for an IDR requires you to submit an Income-Driven Repayment Plan Request, which can be completed online or via a paper form, the latter of which you must request from your loan servicer. You can either choose a specific IDR plan by name or ask that your loan servicer place you on the income-driven plan that you qualify for with the lowest monthly payment amount.
If any of the loans you wish to include in an IDR plan have different loan servicers, you will have to submit a separate request to each of them.
In order determine your eligibility for certain plans and to calculate your monthly payment, you will have to provide either your adjusted gross income (AGI) or an alternative documentation of income. If you've filed a federal income tax return in the prior two years, and if your current income is largely the same as what was reported on your most recent return, then you will use your AGI. If you are unable to meet either of these criteria, then an alternative documentation of income will be required.
- In the former case, if applying online, you can use the included IRS Data Retrieval Tool to pull your AGI information from your federal income tax return. Alternatively, if applying with a paper form, you will need to include a printed copy of your most recently filed federal income tax return or Internal Revenue Service (IRS) tax return transcript.
- In the latter case, if you are currently receiving taxable income, you are limited to the paper Income-Driven Repayment Plan Request and must include the alternative documentation of your income (i.e., a pay stub). However, if you currently have no income (or if you only receive untaxed income), then you can indicate that on either application and won't be required to supply any further documentation.
Teacher Loan Forgiveness Program
Student loan forgiveness for teachers is neither generous nor easy to qualify for. Teachers can have up to $17,500 of their federal direct and Stafford student loans (but not PLUS or Perkins loans) forgiven by teaching for five complete and consecutive academic years (at least one of which must have been after the 1997–98 academic year) at a qualifying low-income school or educational service agency.
Even if you were unable to complete a full academic year of teaching, it may still be counted toward the required five academic years if you completed at least half of the academic year; your employer considers your contract requirements for the academic year fulfilled for the purposes of salary increases, tenure, and retirement; and you were unable to complete the academic year because you either returned to postsecondary education in an area of study directly related to the five academic years of qualifying teaching service, had a condition covered under the Family and Medical Leave Act (FMLA) of 1993, or were called to over 30 days active duty as a member of a reserve component of the U.S. armed forces.
You must be classified as a highly qualified teacher in order to be eligible for the program. This means you have at least a bachelor's degree, full state certification, and not had certification or licensure requirements waived on an emergency, temporary, or provisional basis, with additional qualifications varying based on whether or not you are new to the profession. Only full-time science and math teachers at the secondary level, as well as special education teachers at the elementary or secondary level, are eligible for $17,500 in forgiveness. Forgiveness is capped at $5,000 for other full-time elementary or secondary education teachers.
If you have had an outstanding balance on a direct loan or an FFEL on or after Oct. 1, 1998, then you will be ineligible for the program. Additionally, only loans made before the end of your five academic years of qualifying teaching service will be eligible for Teacher Loan Forgiveness.
You can potentially qualify for both the Teacher Loan Forgiveness and Public Service Loan Forgiveness (PSLF) programs, but you can't use the same years of teaching service to meet the eligibility requirements for both programs. So you'd need 15 years of teaching service to qualify for both programs, in addition to meeting all the specific requirements to earn each type of forgiveness.
How to Apply
Once you have finished your five complete and consecutive years of qualifying teaching, applying for the Teacher Loan Forgiveness Program only requires submitting a completed Teacher Loan Forgiveness Application to your loan servicer.
If any of the loans you wish to have forgiven under the Teacher Loan Forgiveness Program have different loan servicers, you will have to submit a separate form to each of them.
However, the application's certification section will have to be filled out by the chief administrative officer of the school or educational service agency where you undertook your qualifying teaching service, meaning you will need to send them the form before you can submit it.
Public Service Loan Forgiveness (PSLF)
If you work a full-time job for a U.S. federal, state, local, or tribal government—or a not-for-profit organization—you could already be on your way to student loan forgiveness. You'll need to make 120 payments, which don't have to be consecutive, under a qualifying repayment plan in order to be eligible.
This option isn't for the recent graduate, as it takes at least 10 years to earn. Additionally, you'll need to either have a federal direct loan or consolidate your federal loans into a direct loan.
Unfortunately, this program has been rife with controversy. The government created the PSLF program in 2007, and when the first borrowers became eligible for forgiveness in 2017, almost all of their applications were denied, often over technicalities. In some cases, borrowers found that their loan servicers had misled them about their eligibility for the program.
Temporary Expanded Public Service Loan Forgiveness (TEPSLF) might help you if your Public Service Loan Forgiveness application was previously denied. TEPSLF may grant qualifying borrowers the forgiveness they were denied under PSLF, but only if they apply before the Oct. 31, 2022 deadline.
On Oct. 6, 2021, the Education Department announced temporary changes to the PSLF program (due in part to the COVID-19 pandemic) that will allow borrowers to receive credit for past payments regardless of payment plan or loan program—and regardless of whether payments were made on-time or in the full amount. Borrowers have to submit a PSLF form by Oct. 31, 2022, to receive these benefits.
Many of the previous requirements for PSLF are waived as part of the change, with two key requirements remaining:
- Full-time employee or qualifying employee when the prior payments were made.
- All loans must be federal direct student loans (or consolidated into a direct loan program by Oct. 31, 2022).
The waiver will also allow active-duty service members to count deferments and forbearances toward PSLF. The final major change as part of this update is that the government will now review denied PSLF applications for any errors and allow borrowers the ability to have their PSLF determination reconsidered.
How to Apply
First, if you have FFEL Program loans and/or Perkins Loans, be sure to consolidate these into a direct consolidation loan by Oct. 31, 2022. You can’t receive credit for time in repayment if you consolidated and submitted your PSLF form after that date.
Actually applying for PSLF boils down to a four-step process, each of which require utilizing the online PSLF Help Tool:
- Search with the PSLF Help Tool to determine if you work for a qualifying employer.
- Have your employment for each year certified by the official who is authorized to do so by your employer.
- Apply for forgiveness once you’ve met all the programs requirements.
- Sign your PSLF form and then submit it to the PSLF servicer.
For the final step, send the completed form, alongside your employer’s certification, to MOHELA, the U.S. Department of Education’s federal loan servicer for the PSLF Program. If MOHELA is already your loan servicer, you may upload your PSLF form directly to their website. Alternatively, you can fax your PSLF form to 866-222-7060 or mail it to the following address:
- U.S. Department of Education
- 633 Spirit Drive
- Chesterfield, MO 63005-1243
Student Loan Forgiveness Is Not the Same as Forbearance
Forgiveness eliminates your debt; forbearance postpones your payments. If you're having trouble making student loan payments, you can ask your lender for forbearance. Your lender may not give you a forbearance if you don't meet eligibility requirements, such as being unemployed or having major medical expenses.
Interest on your loan will still accrue, and you can pay that interest during the forbearance period if you want. If you don't pay it, the accrued interest will be added to your principal balance once your forbearance period is up. Your new monthly payment will be slightly higher as a result, and you'll pay more interest in the long run.
The only relationship between forbearance and forgiveness is that when you're in forbearance, since you're not making payments, you're not making progress toward the payment requirements of a forgiveness program you might be participating in.
CARES Act Automatic Federal Student Loan Forbearance
If you have a student loan owned by the U.S. Department of Education, the government has granted you automatic forbearance on this loan under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. On Aug. 24, 2022, the Biden administration extended the forbearance period, allowing loans to stay in forbearance through Dec. 31, 2022.
Between March 13, 2020, and Dec. 31, 2022, no interest will accrue, and you don't need to make any payments. No late fees will apply if you stop paying during this period. You'll know you have this benefit if you see a 0% interest rate when you log in to your student loan account. On March 30, 2021, the Department of Education extended this benefit to defaulted privately held loans under the FFEL Program.
Under normal circumstances, you can't make progress toward loan forgiveness during forbearance. But under the CARES Act, you can. You'll receive credit toward income-driven repayment forgiveness or PSLF for the payments you normally would have made during this period.
There may be tax obligations tied to any loan forgiveness.
Potential Pitfalls of Forgiveness
The IRS likes to tax things, and forgiven debt is no exception. Except, public service loan forgiveness is not considered taxable income. But any balance wiped out through an income-driven repayment plan can be counted as income and taxed. It's important to prepare for this eventual tax bill. Consider setting aside money in a dedicated savings account.
Note that the American Rescue Plan, passed by Congress and signed by President Biden in March 2021, includes a provision that student loan forgiveness issued between Jan. 1, 2021, and Dec. 31, 2025, will not be taxable to the recipient.
The Bottom Line
The burden of student loans can be pretty overwhelming, and student loan forgiveness isn't easy to earn, no matter which route you pursue. It takes years and, ultimately, may not pay off. It puts you at the mercy of powerful student loan servicers. It subjects you to the ever-shifting political winds that seek to change forgiveness programs.
All student loan forgiveness programs come with certain conditions, requirements, and limitations. You must follow the rules to a T to qualify. If you're already in deep, forgiveness may be the most appealing way out, especially if you've made life and career choices with a reasonable expectation of getting your remaining student debt erased after years of payments. Forgiveness is not the only solution to out-of-control student loan debt, however. In dire circumstances, getting student loans discharged in bankruptcy may be an option.
Student loan forgiveness might be a welcomed possibility—offering some relief to student borrowers toward the end of their repayment period—but its future is uncertain. Students should be wary of incurring debt beyond their means based on the assumption that a good chunk of it will be forgiven.