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Guide to Student Loan Forgiveness

A Guide to Student Loan Forgiveness
Nancy Bilyeau
Nancy BilyeauUpdated August 24, 2022
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If you have federal student loans and earn under $125K per year, congratulations! Up to $10K of your federal student debt has just been wiped off the books, President Joe Biden declared today.Additionally, if you received Pell Grants, you will receive an additional $10K of forgiveness.The announcement about federal student loan forgiveness also included a new end date for the payment pause that has been in effect since the beginning of the pandemic. The payment holiday is now set to end Dec. 31, 2022.Of course, before the President delivered student loan relief for millions of people today, there were forgiveness programs created by the Department of Education’s Federal Student Aid department and mostly centered on jobs and payment history. The government is particularly looking for ways to ease the loan burden of teachers, nurses, and public service workers.Read on for more about the new $10K forgiveness plan as well as the already existing programs that forgive federal 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 canceled more than $32 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 canceled 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, typically 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?

Before the Biden administration canceled up to $10K of student loan debt for millions of people who fall under the income cap, nearly 43 million Americans owed a staggering $1.6 trillion. Student loans were the second largest portion of household debt following mortgages, and 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.

The Biden Administration Student Loan Debt Plan

As Biden campaigned while running for president, he has canceled $10,000 in federal student debt for borrowers who make $125K or less per year (or $250K or less for married couples who file jointly). How the income threshold will be implemented and other details will be provided in this space as they are released.Additionally, people who received Pell Grants in college are eligible for another $10K of student loan relief. The Pell Grant program was initially created to help low- and middle income families afford college, and at one time covered nearly 80% of costs. With college costs rising significantly over time, Pell Grant assistance now only covers a third of the cost, leaving many with no other option but to borrow.

Types of DOE 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.

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, that loan amount 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, Biden’s new forgiveness plan, or programs based on your job.

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 its programs for them. Forgiveness is also the phrase used to describe President Biden’s plan to cancel $10,000 of federal student loan debt per borrower who falls under the annual income threshold of $125K and an additional $10K for those who received Pell grants.With payments on federal student loans set to resume on Jan. 1, 2023, some people may want to refinance what remains of their federal loans (after the cancellation of $10K or $20K) before rates rise even more. Compare student loan refinancing rates to find a loan that works for you.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Photo credit: iStock/GaudiLab

About the Author

Nancy Bilyeau

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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