What is Student Loan Forgiveness?

What is Student Loan Forgiveness

Borrowers who had taken the student loan get released from their obligations to repay the part of the loan or entire federal student loan. Borrowers takes loan to pay post secondary education fees. Not all borrowers are eligible for forgiveness, it is limited for the person with certain public service, military professions and educational. Student loan forgiveness is only available for some type of loans.

Widespread loan forgiveness proposal by Biden Administration is on hold while court challenges are decided.

How Student Loan Forgiveness Works

Entire debt or part of the debt is forgive/eliminated in finance parlance, which relieves all obligations on borrowers to repay it. Loan forgiveness means a debt. Student loan forgiveness usually applies to U.S. government backed or government issued loans.

On the other hand, privately issued loan is not eligible for Loan forgiveness program even though it is from commercial banks or any lender who is earmarked for student loans.

Forgiveness is the option for the borrowers with eligible loans, if you want to apply for loan forgiveness then you have to continuously pay amount until your application is approved.

Due to pandemic 2020, economy crisis was dangerous for borrowers to repay the loan amount. Borad loan forgiveness for all the borrowers, not only for those who works on public service, educational or military. also for the one who defrauded by their colleges which became very big debated politics issue.

To shed their student debt is the choice many borrowers, only few gets a chance to do so. Requirement is depends on type of loans but the forgiveness offer is only for the employee with certain public service occupation includes government employee, teachers, member of military and Americorps and some non profitable employee.

All the federal loans are not eligible for forgiveness. Only Student loans directly taken from federals or perkins loans are eligible, these loans are also called as a Stafford Loans also for some teachers Federal Family Education Loans (FFELs). For student loan borrowers some repayment plans are also offered include forgiveness of some of the debt and discharge.

Type of Student Loan Forgiveness

Public Service Loan Forgiveness (PSLF)

People who works in public service either for government or for non profitable organization, these people may be able to get part of your loan , forgiven by providing specified Military service, volunteer work and medical practice. The Public Ser uce Loan Forgiveness is designed for such peoples.

You should make your first 120 qualifying payment (means pay minimum amount due on time), if you want to forgiven your debt under public service plan. All the payment must be made while you are working for good or qualifier employer like state, federal, local government or any non profitable organisation with tax exempt status. 120 monthly payment is equal to 10 years, that means you will get qualify for the loan forgiveness after 10 years.

The potential eligible positions include people working in government, nursing, police and fire department also some social work. It you have made your payment after 1-Oct-2007 are qualify for the eligibility.

Loans that are directly made by federal government (known as William D. Food Federal Direct Loan Program) are eligible for Loan Forgiveness. On the other hand non federal loans issued by private lender or financial organization or any loan companies are not eligible for student loan forgiveness.

If you have borrowed the loan through FFEL program or Perkins loan program which non defunct, then you can consolidate this debt into Direct Consolidation Loan. This new consolidated loan is eligible for Public Service Loan Forgiveness (PSLF).

A 2021 Temporary Revamp For PSLF

Under the PSLF rules, the payment which we make on combined loan counted towards 120 loan payments. Old loan payment were not considered. Enrollment for government four income driven repayment plan has to be done by you.

U.S. education department has announced relaxation of program restrictions in 6-Oct-2021. Borrowers could receive credits for past loan payments for limited period of time until 31-oct-2021 otherwise they would not qualify for PSLF (FFELs and Perkins loans) to hit 120 loan payment mark. Not just income contingent counted but also payment under repayment plan also counted.

You need to have direct federal loan or have to combine them into direct consolidated loans by 31-Oct-2022 deadline.If any change made in the rule will also apply to those who already in the PSLF program.

Applying for Loan Forgiveness

In order to apply for loan forgiveness, you and your employer need to complete and file the program called Application (PSLF Form), Public Service Loan Forgiveness (PSLF) & Temporary Expanded PSLF (TEPSLF) Certification. First you have to consolidate your Perkins loan and FFEL program loans into direct consolidated loans until 31-Oct- 2022, to take advantages of temporary waivers. If you consolidated the loan after 31-Oct-2022 then You won’t be able to receive credit for sometime. After the consolidation, you can submit PSLF form.

Repayment Plans with Loan Forgiveness

Even if you don’t work in public service sectors, you will be able to get forgiveness on part of you student debt but it takes some long time. Federal income driven repayment plan is designed to help Students who is having trouble to make loan payment within 10 year time frame. These students are allowed for some debt forgiveness after some period.

Repayment plans include,

• Income Based Repayment : 10 to 15% will be required from discretionary income (monthly payment). Loan forgiveness eligibility requires minimum 20 to 25 years of payment.

• Income Contingent Repayment: Based on family size, gross income and outstanding federal loan, payment is recalculated each year. Usually it is 20% of discretionary income. Loan forgiveness eligibility requires minimum 25 years of payment

• Revised Pay As You Earn and Pay As You Earn: Maximum 10% of discretionary income (monthly payment). Loan forgiveness eligibility requires minimum 20 years of payment. Government can also pay part of the interest from the loan.

Employer pays $10,000 every year from your loan if you work for federal agencies, maximum $60,000 from student loan repayment program.

Student loan servicer handles all this repayment plans of yours, you can reach out to them and enroll in any repayment plans or change your existing plan. You can also do this online at servicer website.

Borrower Defense

Students are eligible for loan discharge which is formally known as a ‘borrower defense to loan repayment’ forgiveness, if your school misled you or misconduct in violation.

Dismantling the program by delaying claim processing, increase the burden of proofs, denying claims without due process, or by offering partial forgiveness, this is attempted by Education secretary Betsy Devos during Trump Administration.

In March 2021, under Biden administration, It is announced by Education department that instead of forgiving the loan taken by student in borrower defense, the formula for the calculating partial relief would rescinded.

Thank You