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Federal Student Loan Forgiveness and Discharge Guide
8 min

Federal Student Loan Forgiveness and Discharge Guide

Finance
Dec 10, 2021
/
8 min

money or US dollars
Details of Student Loan Forgiveness

A debt that is due to a lending institution or a financial institution by a student who is currently enrolled has previously withdrawn, or has graduated is termed as 'Student Debt'.

If the student has abandoned classes and withdrawn from school, or if the student has graduated but is underemployed, the lent sum or student loan or debt, may be owed to the school (or the bank).

A common question that arises in every student’s mind is, ‘how can I get rid of student loan debt and, when can I get forgiveness as an option? We don't need statistics to tell us how deeply graduates in the United States are in debt.

These are some of the significant highlights of Student loan forgiveness in the U.S. 

What is Student Loan Forgiveness?

The process of discharging students from having to return a portion or all of their federal student loans is Federal Student Loan Forgiveness. After completing secondary education, such borrowers who have availed of student loan forgiveness are relieved from paying the debt.

The facility is available for different other loans too, including direct and Perkins loans. Individuals who aim to be qualified for the forgiveness of their debts must apply for the respective portals. But, until the application is approved, they may have to continue making instalments.

How does it work?

  1. Individuals seeking loan forgiveness must apply and may be required to continue making payments until their application is approved due to the strict eligibility criteria.
  2. Any student debt can be forgiven in theory, in fact, student loan forgiveness is limited to loans issued or backed by the Government Of the United States, which accounts for 92% of all student loans in the country. 
  3. In other words, even though the loans are allocated for students, the well-publicized forgiveness programs do not apply to any privately issued loans, including those from a commercial bank or private lenders. 
  4. In the second quarter of 2021, total student loan debt was raised to $1.73 trillion, out of which, $1.59 trillion accounted for the Federal Loan Portfolio. Nearly 43 million Americans owe an average of $40,000 of obligations according to the current numbers.

Federal policy changes regarding student loans

Most four-year private institutions and public universities have loan limits that are lower than their costs. To make up for the difference, students take out private student loans. As federal policies change, so does the maximum amount a student can borrow.

The CARES Act, 2020

  1. The CARES Act of 2020 also introduced some temporary changes like the suspension of loan payments and the imposition of 0% interest rates on loan balances.
  2. The forbearance period has been extended by the Biden administration, allowing loans to remain in forbearance until August 31, 2022.
  3. During such a period, the administrative bodies have waned a norm that students shouldn't repay their loans as if they were to have exercised the student loan forgiveness program. 
  4. The management also stated the repayment as "counterproductive" and alerted students that "doing so won't make them qualified for the PSLF sooner".

Biden-Harris Administration Assessment on Student Loan Forgiveness 

  1. In the latest updates from the Biden-Harris administration, the government of the U.S. had decided to provide student loan relief to vast sums of students from loan indebtedness. The increasing debt in the accounts of university and college students has been a significant concern. 
  2. The Biden administration announced substantial new changes to Public Service Loan Forgiveness (PSLF) to tackle this problem. It is working on the expansion of eligibility for student loan forgiveness programs for public service borrowers by integrating the Limited PSLF Waiver program, which will run until October 31, 2022. 
  3. The Biden-Harris administration announced Operation Fresh Start, which will automatically remove millions of federal student loan borrowers from default, and is now considering income limits on student loan forgiveness—but Biden officials have not provided many details on an anticipated sequence.

Several Biden student loan forgiveness programs qualify for the relief measure. Some of these cover-

  1. Direct Loan Program
  2. Federal Family Education Loan program
  3. Perkins Loan program

Types and Eligibility of Student Loan Forgiveness

1. PSLF (Public Service Loan Forgiveness)

The PSLF program was developed to relieve public servants like those working as a volunteer, in military service and medical practitioners of the federal student loan debt.

The government also laid out ideas for students' help under this program. To avail the same, you will be required to: 

  1. Make 120 qualifying payments of your loan on or before due dates while you are employed by a federal, state or local government or a nonprofit organization with tax exemption status.
  2. You must be qualified after 10 years on the job and 10 years of monthly payments. Only the payments made after October 1, 2007, will be qualified for earning eligibility.
  3. Also, you must be availed of direct loans made by the federal government, a.k.a William D. Ford Federal Direct Loan program
  4. Private lenders' loans that fall under non-federal loans do not qualify for the PSLF (Public Service Loan Forgiveness) program.

2. Teacher Loan Forgiveness

  1. Teacher Loan forgiveness is valid for those teachers who are or have been employed as full-time, highly qualified teachers in a low-income elementary school for five complete and consecutive academic years.
  2. They can avail of Direct Loans and FFEL Program loans except the Loans issued before Oct. 1, 1998. 
  3. The employee should have worked after the 1997-98 academic year for at least one year at a low-income school or educational institution. 
  4. Eligible individuals can avail of up to $17,500 under this program. It is also worth noting that the loan must be made after the five-year qualifying period and on the subjects, you teach as a teacher.

3. Loan forgiveness for Doctors 

  1. Doctors can also avail of student loan forgiveness under certain norms. The National Health Service Corps Loan Repayment Program offers doctors avail up to $50,000 in waiving off student debt in exchange for two years of work in an approved position.
  2. The eligibility for such a waiver includes working for a qualifying employer in a high-need area. 
  3. Doctor personnel in the defence services (the U.S. Army, the U.S. Navy, and the U.S. Air Force) can also avail of loan removal forgiveness.

4. Loan forgiveness for Nurses

  1. Registered nurses employed for full-time nursing job roles in high-need nursing services can also avail of a student loan relief program. 
  2. Upon approval, you can exercise up to 60% of your loan erasing after two years of service. 
  3. After the third year, you can reapply for the student loan forgiveness program and claim another 25% debt removal under the scheme.

5. Military Personnel and AmeriCorps Loan forgiveness

  1. Military personnel can avail of student loan forgiveness under the Biden government by various options such as the National Defense Student Loan Discharge benefit that allows you to get all or some of your debt released under certain circumstances.
  2. These can be hostile-fire or imminent-danger pay. You can also avail of up to 50% forgiveness if you have served before Aug. 14, 2008. Moreover, you are eligible to avail of up to 100% of loan forgiveness student loans if your service began on or after it.
  3. After completing a qualified service contract, National Guard Members can also apply for the Student Loan Repayment Program, granting up to $50,000 in debt forgiveness. 
  4. Meanwhile, members of AmeriCorps can avail themselves of student loan forgiveness under the Public Service Loan Forgiveness and Segal AmeriCorps Education Award for granted individuals.
  5. You can also use the award money to pay off any student loans that meet the criteria. The maximum amount is the same as a Pell Grant, which is $6,895 for the 2022-23 award year, subject to annual changes in the amount. Individuals who have completed service in an approved AmeriCorps program can avail of up to 100 percent of interest payments accrued under the Office of the National Service Trust, aka the Trust during their time of service paid for.

6. Loan forgiveness for lawyers

  1. Eligible lawyers under the Attorney Student Loan Repayment Program can get up to $6,000 of student loan forgiveness each year. The maximum amount to avail is $60,000. 
  2. Furthermore, the John R. Justice Student Loan Repayment Program is an excellent option for public defenders to avail of up to $4,000 annually and maximum forgiveness of $60,000.

Application to Student Loan Forgiveness: Procedure

You can apply either by contacting your service provider or by joining your FFEL Program loans and Perkins Loans into a Direct Consolidation Loan. 

If you apply by joining your FFEL Program loans and Perkins Loans into a Direct Consolidation Loan then you must follow these steps:

  1. Apply before Oct. 31, 2022. Students availing of this facility after the prescribed date aren't eligible for the student loan relief program.
  2. After consolidation, you are required to submit a PSLF form to your loan service provider. 
  3. Then Verify loan types in Aid Summary.
  4. Eligibility of employment must be verified by completing Step 1 of the PSLF Help Tool.
  5. Eligible individuals who do not have a direct loan can request a Direct Consolidation Loan before October 31, 2022.
  6. Submit the PSLF form with the PSLF Help Tool before Oct. 31, 2022. 
  7. You can also take help from the federal government PSLF Help Tool.

Approved Application for Student Loan Forgiveness


Sr. No. Condition for approval of the application Effect for approval of the application
 1. Qualification for the forgiveness of the full amount of your loan  No obligation to make loan payments.
 2.  Qualification for the forgiveness of only a portion of your loan Responsibility for repaying the remaining balance.
3.  Qualification for certain types of loan discharge Refund receivable of some or all of the payments made by you on the loan.
 4. Information related to your negligence or default on the loan Deletion from your credit record.
 5. If the loan is in default  Erase the default status. 
 6. If no other defaulted loans Eligibility regains for federal student aid.

Denial of Application for Loan Forgiveness of Student Loans 

If your application is turned down, you will still be liable for repaying the debt according to the terms of the promissory note you signed. If you have a Direct Loan or an FFEL Program loan, talk to your loan service provider about your repayment choices. 

Contact your loan service provider for further details if you believe your application was rejected in error.

Student loan forgiveness vs Student loan discharges

Student loan forgiveness is not the same as student loan discharge, although their results are similar. In loan forgiveness, the borrower continues repayments until the application is approved and loan discharge immediately stops the borrower’s obligation to repay the debt.

The U.S. government has also dismissed all student loans from a fixed group of individuals. Such groups are eligible for 100% forgiveness. These groups cover-

  1. Borrower's permanent disability or death.
  2. Closure of educational institutions during studies.
  3. Falsification of the loan credentials by the school.
  4. Identity theft on someone else's part.
  5. Failure of the school to refund the required loans.

Pros & Cons of Student Loan Forgiveness

Pros:

  1. Allows you to get out of a debt that you're having trouble paying off.
  2. Encourages public participation.
  3. Increases the amount of money available for expenditure (disposable income).
  4. Competitive rates and few fees.
  5. Transparency in the application procedure

Cons:

  1. Qualifying takes years
  2. This may increase taxable income.
  3. Interest can be accrued more quickly if this option is used (income-driven repayment plans)
  4. Strict eligibility requirements

Repayment Plans

Income-based repayment or Income-driven repayment can be explored for your remaining student debt easement. Some of the standard plans include Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), Income-based repayment (IBR), and Income-contingent repayment (ICR).

Student Loan Repayment Scams

Student Loan Repayment Scams can be identified in various ways:

  1. To get help, you are asked to pay upfront or monthly fees.
  2. Immediate loan forgiveness is promised by the company.
  3. You are being pressurized by a salesperson into signing up.
  4. You’re asked to share sensitive personal information.
  5. The company advertises on social media or shows up in search engine ads.

How can you report a Student Loan Forgiveness Scam?

Filing complaints with the CFPB, the Federal Trade Commission or your state attorney general’s office can help in getting your money back. These agencies rely on consumer complaints to police harmful student loan companies.

Help Resources

Confused about getting Resources for Student Loans? Get help from The Institute of Student Loan Advisors which renders advice on repayment plans, forgiveness programs and dispute resolution. 

FAQ’s

Q1. How Do I Get Student Loans Forgiven?

Answer: Student loans can be forgiven in two basic steps:

1. By consolidating all your loans into one debt.

2. By applying for forgiveness by filing a special application.

Q2. Who Pays For Student Loan Forgiveness?

Answer: Either the Commercial Banks or the U.S. Government.

Q3. Can Student Loan Interest Be Forgiven?

Answer: Affirmatively, if you get a forbearance on your loan, you won’t have to pay interest. Refinancing the debt is another option if you want to pay lower interest.

Conclusion

Not everything is perfect. Student loan debt can be burdensome, and loan forgiveness is difficult to achieve, regardless of which path you take. It takes years and may not pay off in the end. All student loan programs include terms and restrictions that must be adhered to.

If you opt to join a loan forgiveness program, be sure you get written confirmation of the loan forgiveness amount and terms.