Law #18: Explore ways to get your student loans forgiven
The Law
Regardless of your political beliefs, if you qualify for a government-related assistance program, it's your right to consider that program. The very first Federal student loans were issued in 1958. The Public Service Loan Forgiveness program began in 2007, and income-driven repayment plans with paths to debt forgiveness began in the mid-1990s. In addition to forgiveness, the federal government discharges student loan debt in certain circumstances, and several states also have student debt relief programs. As the landscape for college financing changes, keep up with options for debt forgiveness or discharge to achieve debt-free status faster. Learn about these options to see if you qualify now or may be eligible in the future.
Your Keys to Power
Presidential student loan debt cancellation. Yesterday, August 24, 2022, President Biden announced his administration’s student debt cancellation plan. Here are the nuts and bolts of the announcement:
Up to $10,000 in federal student loan debt to be forgiven
Up to $20,000 in federal student loan debt to be forgiven if you received Pell Grants
Income qualifications for both programs apply:
Individual borrowers must earn less than $125,000 a year
Couples must earn under $250,000 a year
You do not need to take action to receive debt relief. Wait for a notification from your loan servicer. Ensure your contact information—email, address, and telephone number—is up to date with your loan servicer.
If you have private loans, this announcement will not apply to you
If you owe less than $10,000 (or $20,000 if you received Pell Grants) and you qualify, you will likely soon be free of student loan debt
Student loan debt forgiveness will be tax-free
If you have already paid off your student loans, this announcement does not apply to you
The pause on student loan payment requirements is extended from August 31 through the end of the year with interest accrual and collections remaining on pause
The Education Department promised more details in the coming weeks before student loan payments resume in January 2023
The announcement may lower the amount borrowers on an income-driven repayment plan will have to pay each month from 10% to 5% of discretionary income, with new rules for calculating discretionary income
Read the most up-to-date details about the announcement in this fact sheet from the President’s briefing room
Income-driven repayment forgiveness. The federal government offers four main income-driven repayment plans, which cap loan payments at a percentage of monthly income. These plans could benefit you if your loan balance is high compared to your income. Depending on the program, your remaining loan balance will be eligible for forgiveness after 20 or 25 years. Note that as of publication, the National Consumer Law Center reports that just 32 borrowers have received loan forgiveness through this program. The March 2021 American Rescue Plan made debt forgiveness under this program tax-free retroactive to December 2020 through the end of 2025.
Public Service Loan Forgiveness. Public Service Loan Forgiveness (PSLF) is an option for government and qualifying nonprofit employees with federal student loans. After making 120 qualifying loan payments, you can have your remaining loan balance forgiven tax-free if you are eligible for the program. Through a PSLF waiver, the Education Department expanded the payments that count toward forgiveness until October 31, 2022—go here to see what payments qualify.
Teacher Loan Forgiveness. Full-time employed teachers may be eligible for Teacher Loan Forgiveness after working for five consecutive years in a low-income public elementary or secondary school or an educational service agency. Forgiveness applies to up to $17,500 in federal Direct or Stafford loans taken out after October 1, 1998.
Student loan forgiveness for nurses. Nurses have several options for student loan forgiveness, of which the most popular paths include:
NURSE Corps Loan Repayment Program, which pays up to 85% of qualified student loan debt for registered nurses, advanced practice registered nurses, and nurse faculty
Armed forces student loan forgiveness and assistance. You may qualify for specialized forgiveness programs if you serve or have served in the Navy, Air Force, Army, National Guard, or Coast Guard. Under conditions established by the Department of Defense, you may be relieved of some or all of your student loan debt. Contact your designated Military Personnel Officer or representative for application process details.
Loan Repayment Assistance Program (LRAP). This program is designed to help those whose income is modest after graduation to pay back federal, private alternative, and parent PLUS loans.
Perkins loan cancellation. By working full-time as a teacher in a public or nonprofit elementary or secondary school system teaching qualifying subjects, you can have your Federal Perkins Loan canceled up to 100%.
State-based loan forgiveness or assistance programs. This source indicates that, as of publication, 47 states and the District of Columbia offer special student loan forgiveness programs for their residents. The programs often cover public services like teaching, healthcare, and legal. Here is a list of programs by state. You can also contact your state’s education department to learn about programs and qualification requirements.
Specialized discharge options. Here are four additional discharge options related to specific conditions.
Borrower defense to repayment discharge. For borrowers who were defrauded by their colleges.
Closed school discharge. For borrowers whose schools closed while you were enrolled or soon after you withdrew.
Total and permanent disability discharge. For those who cannot work due to being totally and permanently disabled. Go here for full details about the application process.
Discharge due to death. Upon death, federal loans will be discharged upon submission of a death certificate to the student loan servicer. Similarly, parent PLUS loans are discharged upon your or the parent’s death.
Practical Application
Stay in front of the legislation, and read the details. Most federal student debt relief programs are introduced through acts of Congress, which means they will be released in pieces of legislation that you can read. When new legislation passes, don't just listen to the news or scan snapshots online. Endeavor to read all or parts of the bill to have a deeper understanding of relief programs.
Don’t put your complete trust in student loan servicing companies. While one would like to think these companies are there to assist you in making quality decisions, reports like this should caution you to do your own research.
Prioritize the debt. Always prioritize debt and make sure that you are planning and budgeting to repay loans with timely, regular payments. Even if you are planning for forgiveness, make sure you're making payments on time so that you protect your credit report in the meantime.
Understand the number and types of loans you have. It's essential to understand how many loans you have and the types of loans you have. Many borrowers have multiple loans; some may have different types of loans, for instance, federal and private. The federal government issues federal loans, while financial institutions like banks issue private loans. Certain federal programming does not apply to private loans, so you want to know what types of loans you have.
Regarding presidential student loan debt cancellation, don’t do your happy dance just yet. We don't want to block anyone's sunshine, but President Biden's recent August 24 announcement for student loan debt cancellation may face legal and political challenges in the weeks and months ahead. If his executive order faces challenges, that could slow the path to realizing forgiveness, or it may be blocked or overturned. Congress, for instance, could try to overturn the executive order by passing a bill that blocks it; however, the President can veto any such bill. Congress would then need to attempt to override the President’s veto to pass the bill. The Supreme Court also has the power to declare an executive order unconstitutional.
Depending on how things go with presidential student loan debt cancellation, carefully read the tea leaves about future cancellation options. Depending on the midterm elections result, the political and legal response to the first executive order of all time canceling student loan debt, and future presidential elections, watch the political climate to estimate the likelihood of future cancellation. While this by no means suggests you should avoid paying your debts as responsibly as possible, it does mean staying aware of future options that may reduce your debt burden more quickly if they become available.
If you are at the beginning of the student loan experience and haven’t taken on debt yet, heed these words of caution. Some politicians, economists, and thought leaders suggest that student loan debt cancellation could lead prospective students to take on extra college debt without considering the potential impact on their finances because they will rely on federal student loan cancellation. While that theory is debatable, consider the type of debt you take. Research the job market, pay attention to interest rate expectations, and consider your future finances to evaluate how much debt you accept to go to college, independent of President Biden's announcement.
Authority
“By making college unaffordable and student loans unbearable, we risk deterring our best and brightest from pursuing higher education and securing a good paying job.” - Mark Pocan
“Poorer students take out larger loans and will have to contribute more to the cost of higher education.” - Anne Campbell
“For profit higher education is today a booming industry feeding on the student loans handed out to the desperate.” - Thomas Frank
“The rising costs of higher education coupled with the stress of paying student loans are putting increasing pressure on students.” - Hank Johnson
“College is part of the American Dream. It shouldn’t be part of a financial nightmare for families.” - Barbara Mikuski
“Private student loans should be avoided at all costs.” - Suze Orman
“There’s more student debt than credit card debt!” - Gail Collins
Our Vote
We believe in paying your debt. We also believe in taking advantage of programs that are made available to you. We believe that both can coexist. Strive to pay your debts, budget for them, and pay them on time. That is the right thing to do. If you fall on hard times, take advantage of programs available to you for things like deferrals or income-driven repayment plans. If yesterday's cancellation survives legal and political challenges, we believe you should accept any benefits extended to you with gratitude.
Reversal
The only reversal to this law applies to people who do not have student loan debt. If you started with student loan debt and paid it off, congratulations! If you didn’t take out student loans and still went to college, congratulations! If you didn’t go to college and, therefore, do not have student loan debt, congratulations! In those cases, keeping up with student loan forgiveness programs does not apply to you unless you’re a parent navigating student loans for your child. 😉