A Guide to Student Loan Forgiveness

Nancy Bilyeau

Updated December 8, 2021

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Loan forgiveness means, if you’re approved, you’ll no longer be required to make payments to the server of your federal student loan. You may not have reached the end of your agreed-upon length of the loan, but should forgiveness be granted, you’re off the hook.If you’re eager to find a way to get rid of student loans, your next question may be: OK, so how do I make this happen? The answer: By applying for loan forgiveness and then meeting the government program’s qualifications. The programs usually center on the type of job you have and your history of payment. The government is particularly looking for ways to ease the loan burden of teachers, nurses, and public service workers.Yes, the phrase “student loan forgiveness” is in the news a lot. What’s important to know is that when people talk about it, they often don’t mean these forgiveness programs, created by the Department of Education’s Federal Student Aid department.What people may instead be referring to is the expectation that President Joe Biden will cancel a certain amount of debt for Americans who have student loans. The most common amount discussed is $10,000. But no announcement has been issued about whether this will actually happen. And no matter what happens with this much-debated across-the-board write-off, there are still avenues for you to explore on securing an end to paying off your loan.It’s well worth anyone’s time to learn about these programs that forgive student loans.

What Does Student Loan Forgiveness Mean?

In the context of student loans, forgiving student loan debt means you are released from your obligations of paying all or some of what you owe for your college education. When looking into ways to get relief from your student loans, you may see the terms “discharge” or “cancellation,” and while they end up with the same result — a release from the obligation of having to pay — they do mean different things than forgiveness and they have different requirements.Since becoming president, Biden has cancelled more than $11.5 billion of student loan debt, which is the most of any president, according to Forbes. Some of that amount is debt forgiveness, but a great deal is made up of cancelled debt. One of these cancellations erased $5.8 billion in debt for borrowers with a total and permanent disability.Tens of thousands of borrowers with student loans serviced by Navient may be eligible for student loan cancellation under the terms of a settlement the company made in January. In September 2021, Navient announced that it would be exiting the federal student loan program. The payments from Navient are for loans disbursed between 2002 and 2014.

How Does Student Loan Forgiveness Work?

To pursue forgiveness, people holding federal student loans will first need to fill out an application. To do that, contact your loan server. Depending on the type of forgiveness you’re applying for, you may have to make payments while your application is reviewed. If you qualify for forgiveness, cancellation, or discharge of the full amount of your loan, you are no longer obligated to make loan payments.

Who Pays for the Student Loan Debt?

Although the Biden administration relieved hundreds of thousands of people of their student debt this year, nearly 43 million Americans still owe the staggering figure of $1.6 trillion. Student loans are now the second largest portion of household debt following mortgages, larger than credit card debt.Most federal student loan lenders are huge institutions: the government or international banks. The federal government owns a majority of the debt and guarantees almost all student loans.

Types of Student Loan Forgiveness

The forgiveness programs administered by the DOE’s Federal Student Aid department cover various areas. These programs once had a high rejection rate. After undergoing fierce criticism, the government overhauled them so that more people could benefit.“Borrowers who devote a decade of their lives to public service should be able to rely on the promise of Public Service Loan Forgiveness,” said U.S. Secretary of Education Miguel Cardona in October 2021. “The system has not delivered on that promise to date, but that is about to change for many borrowers who have served their communities and their country.”

Public Service Loan Forgiveness

If you are employed by a government or nonprofit organization, you may qualify for the Public Service Loan Forgiveness (PSLF) Program that Cardona touted.PSLF forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer, says Federal Student Aid.

Teacher Loan Forgiveness

If you teach full-time for five complete and consecutive academic years in a low-income elementary school, secondary school or educational service agency, you may be eligible for forgiveness of up to $17,500 on your Direct Loan or FFEL Program loans, says Federal Student Aid.

Biden Student Loan Forgiveness

While on the campaign trail, President Biden said he would cancel $10,000 in student debt per borrower. This has not happened, and it’s unclear if it ever will happen, despite pressure from Democratic legislators such as Senator Chuck Schumer, who is calling for canceling of even more student debt — $50,000 is the amount Schumer and others have mentioned.

Nurse Student Loans

The Nurse Corps Repayment Program pays up to 85% of unpaid nursing education debt for registered nurses, advanced practice registered nurses and nurse faculty, according to the Health Resources and Service Administration. If you receive an award, you must work for two years in either a “critical shortage facility” or an eligible nursing school as nurse faculty. A critical shortage facility is a public or private health care facility located in, designated as, or serving an area lacking enough primary care or mental health professionals.

Income-driven Repayments

Income-driven repayment (IDR) plans are not the same as student loan forgiveness. They are designed to make student loan debt more manageable by reducing the monthly payment amount. For people in financial distress, they can be very helpful.If you need to make lower monthly payments or if your outstanding federal student loan debt represents a significant portion of your annual income, these are the plans to look into:

Revised Pay as You Earn (REPAYE) is a repayment plan with monthly payments that are generally equal to 10 percent of your discretionary income, divided by 12. Monthly payment amount is based on adjusted gross income, family size and total eligible federal student loan balance.
Income Based Repayment (IBR) Plan is a repayment plan with monthly payments that are generally equal to 15% (10% if you are a new borrower) of your discretionary income, divided by 12.
The Income-Contingent Repayment Plan (ICR) is a repayment plan with monthly payments that are the lesser of what you would pay on a repayment plan with a fixed monthly payment over 12 years, adjusted based on your income or 20% of your discretionary income divided by 12.

Refinancing Your Student Loans

To take advantage of low interest rates, some federal student loan holders may be interested in refinancing their existing federal loans with a private lender. This is perhaps a path to lower monthly payments and a shorter (or longer) loan plan, but to obtain an appealing deal requires evaluation and approval by the private company. A person’s credit rating becomes important when pursuing a refinanced government loan and comparing offers.If you refinance your student loan, you will no longer qualify for any of the federal government’s forgiveness initiatives, whether it’s the pause on payments due to the COVID pandemic or programs based on your job or your income. Should President Biden decide to pursue a $10,000 write-off of student debt, you would not benefit should you have refinanced.

The Takeaway

Student loan forgiveness takes several forms. Most of the time, it means applying for one of the federal student loan forgiveness programs intended for people who’ve held public service jobs. The federal government wants to compensate those who’ve pursued such careers and has strengthened programsForgiveness is also the description used by those who are hoping President Biden will cancel $10,000 (or more) of their federal student loan debt.With payments on student loans resuming on August 22, 2022, some people are looking into refinancing their student loans. To do so, though, would mean the loan holder would not qualify for any forgiveness of federal student loans.

Photo credit: iStock/GaudiLabThe tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.SOLC112179

About the Author

Nancy Bilyeau

Nancy Bilyeau writes about student loans, mortgages, car insurance, medical debt and many other finance topics for Lantern. A veteran of the magazine business, she has edited stories on personal finance for Good Housekeeping and DuJour magazines and has written articles for The Wall Street Journal, Readers' Digest, Parade, Town & Country and Lifetime/A&E, among others. She is a graduate of the University of Michigan.

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