What are Student Loans?
Student loans are financial aid provided to students who need assistance paying for school. The money can be used towards tuition, books, housing, and other college-related expenses. Student loan debt in America has increased over the past 20 years by nearly 500%. This means more Americans have taken on student loans to pay for college. Most student loans are offered through the government. However, some private lenders offer them as well.
Student Loan Forgiveness Programs Defined
People can use many different student loan forgiveness programs to lower or even eliminate their debt. The best part about these plans is that the borrowers do not have to pay taxes on any amount forgiven under these plans. They also don’t need a cosigner, and it will not affect your credit score either. Three primary government-backed forms of student loan repayment are public service, federal direct consolidation loans, and income-based repayment.
What is student loan forgiveness?
Student loan forgiveness is a term that has become increasingly popular in the past decade or so. Student loan forgiveness programs allow borrowers who have loans to either work for an eligible employer (such as government and nonprofit agencies) or live in certain country areas to receive repayment assistance from their lender(s).
Depending on your circumstances and eligibility requirements, this benefit can include economic hardship deferments, principal reductions, and other types of benefits.
What are some examples?
There are several different ways your lender could forgive you:
Income-Based Repayment Plan
Congress created the income-based repayment plan in 2007 with the College Cost Reduction And Access Act. To qualify, you must be on active duty in the military and show that your monthly amount due on all outstanding debts is more than 15% of your monthly discretionary income. You must also receive a Direct Loan disbursement on or after October 2007 to qualify for this plan.
Public Service Loan Forgiveness
To be eligible for PSLF, you must work full-time (at least 30 hours per week) at a qualified not-for-profit organization and make 120 consecutive payments. It’s important to note that while your entire balance may be forgiven under the public service loan forgiveness program, you will still need to pay taxes on any amount canceled from your student loans.
This is because it doesn’t count towards taxable income. It was already repaid by being forgiven through one of these programs.
Teacher Student Loan Forgiveness: The TEACH Grant is a unique program that gives financial assistance to students willing to become teachers in areas of high need or low-income schools.
You must be enrolled in teacher certification programs at your college/university and have made 120 consecutive payments under this plan before you can qualify for any amount forgiven on your loans.
Teacher Student Loan Forgiveness
This program is open to all teachers currently employed in an elementary school, secondary school, and educational service agency that serves low-income families. You must also be pursuing full-time teacher certification at your college/university, so long as you plan on teaching for five consecutive years in schools serving students from low socioeconomic backgrounds or high needs areas. If borrowers have more than one qualifying loan, they may choose which loans they would like counted towards their 120 required monthly payments to receive forgiveness under this program.
Borrowers must apply through their Department Of Education’s student aid website (if employed by the federal government, you should apply through your agency’s HR department) to determine their eligibility. If approved for this program, borrowers will need to be enrolled in a teacher certification program at their college/university and have made 120 consecutive payments before they can qualify for any forgiven amount on qualifying loans.
How to qualify for student loan forgiveness programs
Income-Based Repayment Plan
To be eligible, borrowers must show that their monthly debt obligation amounts are higher than 15% of their discretionary income. In addition, they entered repayment after October 2007 (when IBR was established) and demonstrated enrollment in school half-time while receiving Direct Loans. This includes qualifying federal student loans such as subsidized Stafford Loans, unsubsidized Staffords Loans, direct subsidized Staffords Loans, direct unsubsidized Stafford Loans, Perkins loans, and PLUS loans.
Public Service Loan Forgiveness
To qualify for this program, borrowers must demonstrate full-time employment in public service positions at a qualified not-for-profit organization or federal government agency for no less than 30 hours per week.
Teacher Student Loan Forgiveness
This program is open to all teachers currently employed in an elementary school, secondary school, and educational service agency that serves low-income families. You must also be pursuing full-time teacher certification at your college/university, so long as you plan on teaching for five consecutive years in schools serving students from low socioeconomic backgrounds or high needs areas. If borrowers have more than one qualifying loan, they may choose which loans they would like counted towards their 120 required monthly payments to receive forgiveness under this program. Borrowers must apply through their Department Of Education’s student aid website (if employed by the government, you should apply through your agency’s HR department) to determine their eligibility. If approved for this program, borrowers will need to be enrolled in a teacher certification program at their college/university and have made 120 consecutive payments before they can qualify for any forgiven amount on qualifying loans.
What is the difference between Student Loan Forgiveness and Student Loan Discharge?
Student loan forgiveness is the amount of debt that a borrower can have forgiven, discharged, or canceled. It usually occurs after you make payments for some time (typically 120 consecutive monthly installments).
Discharge, on the other hand, is different in many ways. For example, you may qualify to apply for student loan discharge if your school closes before completing your program and you cannot complete an educational program through no fault of yours.
The institution provided false information about where they were enrolled, made a payment under duress, or harassed collection agencies/debt collectors who would violate consumer protection laws. Loans also become eligible to be discharged if it has been determined that there’s been an error related to the original terms, such as applying late or making payments incorrectly. If your loans are discharged, you will never have to pay back any amount on those particular loans.
What do student loan forgiveness programs not qualify for?
You cannot participate if you’ve been employed by a nonprofit for less than three years, nor will repayment count towards PSLF if made during a period of deferment or forbearance. Furthermore, borrowers who consolidate their direct subsidized/unsubsidized Stafford loans with other Direct Loans (including Perkins Loans) won’t qualify either.
How to apply for student loan forgiveness?
If you are a borrower and have had trouble repaying your loans, applying for an income-driven repayment plan is best. This plan will allow you to make smaller payments that can be more manageable. If you are already involved or enrolled in one of these plans, contact Direct Loans/ Fedloans (who handles all Department Of Education student loan accounts) to determine how many qualifying months of payment count towards forgiveness under each program they offer.
You may need account details such as your servicer number, so don’t forget to ask for it when applying!
How does consolidation affect my eligibility?
Consolidation isn’t considered forgiven since there’s no guarantee that any part of the debt will ever be discharged or canceled. Any amount discounted on the consolidation loan will be treated as taxable income if you consolidate your loans.
Do all student loans qualify?
No, not at all; only federal student loans are eligible for forgiveness/discharge under these programs. Loans such as private education or parent PLUS Loans don’t even come into play in this process and cannot be included in a Federal Student Loan Forgiveness Program.
What are the pros and cons of student loan forgiveness programs?
Pros:
If you are looking for ways to have your loans forgiven or discharged, participating in a federal student loan forgiveness program can allow you to do just that. This is especially true if we discuss having all your debt canceled after ten years, which qualified borrowers may be eligible for under the Public Service Loan Forgiveness Program. It’s also possible with other programs such as Income-Based Repayment (IBR) and Pay As You Earn (PAYE), although not guaranteed like PSLF.
Cons:
One will never qualify for the public service loan forgiveness program unless they consolidate their subsidized/unsubsidized Stafford Loans into one payment.
This can make it difficult for some people to gain access since they may need a cosigner. Furthermore, you cannot receive forgiveness through Pay As You Earn unless your loans originated from the William D Ford Federal Direct Loan Program (Direct Loans).
What are direct federal loans?
Federal direct subsidized/unsubsidized Stafford Loans are another form of government student aid available under Title IV alongside Pell Grants, PLUS Loans, and other programs. This particular type of direct loan is very similar to a typical student loan that you would receive from Sallie Mae or Wells Fargo. Still, the only difference is that it’s subsidized/unsubsidized by the Department Of Education rather than being issued through private lenders (which are still available).
What happens if I consolidate my federal student loan debt?
Suppose your plan for forgiveness includes consolidating all your qualifying debts into one account to qualify for PSLF. In that case, any number of completed months will count towards having at least some portion forgiven up until April 2023. However, since consolidation makes them no longer federally held loans, they cannot be included under an income-driven repayment program. Furthermore, unpaid amounts after consolidation will be capitalized, meaning whatever you owe at the time of repayment becomes even higher.
Why should you opt in if you qualify for the Student loan forgiveness program?
If you believe that your federal student loan debt will remain with you for the rest of your life, it may be best to opt-in since these programs can help relieve some financial burdens. It all comes down to whether or not one has other options, such as refinancing their loans at a lower interest rate, where they might save more money in the long run than if they were to stick around and wait for forgiveness.
What is the future of student loans in the United States?
The future of student loans in the United States is uncertain. It is hard to know what will happen because many factors might make it more difficult for students to access higher education.
If you need to take out student loans, always make your monthly payments on time and in full each month.
Take a look at some Student Loan programs available at Edfed.
