Is it possible to cancel student loan debt?
“Verified by an expert” means that this article has been thoroughly reviewed and evaluated for accuracy.
BLUEPRINT
Updated 2:22 p.m. UTC Aug. 9, 2023
Editorial Note: Blueprint may earn a commission from affiliate partner links featured here on our site. This commission does not influence our editors' opinions or evaluations. Please view our full advertiser disclosure policy.
Moyo Studio, Getty Images
The Biden-Harris Administration’s proposed student debt relief plan that would allow qualifying borrowers to cancel up to $20,000 in federal student loans was ruled against by the Supreme Court on June 30, 2023. Additionally, while interest charges and payments on federal student loans were put on hold due to the COVID-19 pandemic, interest is set to begin accruing on Sept. 1, 2023, and payments will resume in October 2023.
This means you’ll need to consider other options if you’re looking for student loan relief. Here’s what to know about canceling or otherwise taking control of student loan debt.
Laurel Road
How to cancel student loan debt
The Supreme Court’s decision has put a halt to President Biden’s student debt relief plan. However, depending on the type of student loan you have, other forgiveness and discharge options could wipe away some or all of your student loan debt.
Note that unfortunately, private student loan forgiveness generally doesn’t exist outside of rare situations (such as discharge due to the death of the primary borrower, if the lender allows it). If you need help managing your private student loans, you’ll have to consider other alternatives. For example, you might be able to qualify for a lower rate by refinancing your student loans. This could save you money on interest and possibly help you pay off your loans faster.
Student loan forgiveness
Both student loan forgiveness and student loan cancellation refer to the same thing — removing your obligation to repay some or all of your debt. To qualify for student loan forgiveness, you’ll need to meet the criteria of the program you’re applying for.
Here are a few federal student loan forgiveness programs to consider:
- Public Service Loan Forgiveness: The Public Service Loan Forgiveness (PSLF) program is available to employees of nonprofit and government organizations. After you’ve worked full time for an eligible employer for 10 years and made 120 qualifying payments, you can apply to have the remainder of your federal Direct Loan balance forgiven.
- Teacher Loan Forgiveness: If you’re a highly qualified teacher, you could be eligible for $5,000 or $17,500 (depending on the subject you teach) in forgiveness of Direct Subsidized and Unsubsidized Loans. To apply, you’ll have to teach full time for five consecutive years at a low-income school or educational service agency.
- Perkins Loan Cancellation: Perkins Loan borrowers employed in certain career fields might be eligible to have up to 100% of their loan canceled. Eligible professionals include teachers, firefighters, law enforcement officers, military members, nurses and more. To qualify, you must work full time at an eligible job for up to five years. Of your original loan amount, 15% will be canceled in the first and second years, 20% will be canceled in the third and fourth years and 30% will be canceled in the fifth year.
Unlike other cancellation options, any amount of student loan debt forgiven through PSLF, Teacher Loan Forgiveness or Perkins Loan Cancellation isn’t considered taxable income by the IRS.
Student loan discharge
Student loan discharge works similarly to student loan forgiveness. However, unlike forgiveness, discharge is generally granted due to factors outside of your control.
Here are several federal student loan discharge options. Note that each kind of discharge has its own application as well as other documentation requirements.
- Closed school discharge: If your school closes while you’re enrolled or soon after you withdraw, you could qualify for a closed school discharge.
- Borrower defense loan discharge: If you took out a federal student loan to attend a school that misled you or violated other laws, you might be eligible for discharge.
- False certification discharge: If your school falsely certified your eligibility for a federal student loan, you could have that loan discharged.
- Unpaid refund discharge: If you withdrew from school and your school failed to return your loan funds to the servicer, a portion of your loan could be discharged.
- Forgery loan discharge: You might qualify for this if you can show you were the victim of a fraudulent loan discharge.
- Total and permanent disability discharge: Borrowers with a total and permanent disability could have their federal loans discharged.
- Perkins Loan discharge: If you have a Perkins Loan, you could have it discharged in certain circumstances, such as bankruptcy, death or military service-connected disability.
- Discharge in bankruptcy: Though rare, federal loans can be discharged in some cases if you file for bankruptcy.
- Discharge due to death: If the primary borrower or student who benefited from a PLUS Loan passes away, their federal student loans will be discharged.
Depending on which type of discharge you qualify for, you might not have to pay taxes on the discharged amount. For example, loans discharged due to school closure, fraud or disability aren’t considered taxable income.
Also keep in mind that the American Rescue Plan Act of 2021 prevents any student loans forgiven or discharged from being subject to federal taxes through Dec. 31, 2025.
Income-driven repayment
If you don’t qualify for another federal student loan forgiveness or discharge program, signing up for an income-driven repayment (IDR) plan can be a good idea. Under this type of plan, your payments are based on your income and household size. This will typically reduce your payments to 10% to 20% of your discretionary income. For some borrowers, payments could be as low as $0.
Additionally, you could have the remainder of your balance forgiven after 20 or 25 years, depending on the plan.
Here are the four main IDR plans to choose from:
| PLAN | PAYMENTS | REPAYMENT PERIOD |
|---|---|---|
Pay As You Earn (PAYE)
| 10% of discretionary income (never more than payment on standard 10-year plan)
| 20 years
|
Saving on a Valuable Education (SAVE)*
| 10% of discretionary income
| Undergraduate loans: 20 years |
Income-Based Repayment (IBR)
| For borrowers with loans made on or after July 1, 2014: 10% of discretionary income (never more than payment on standard 10-year plan) | For borrowers with loans made on or after July 1, 2014: 20 years |
Income-Contingent Repayment (ICR)
| 20% of discretionary income (or what you’d pay on a fixed 12-year plan)
| 25 years
|
* The SAVE Plan replaced the previous Revised Pay As You Earn (REPAYE) plan in summer 2023. Borrowers who were on the REPAYE plan were automatically moved to the SAVE Plan upon its launch.
If your federal students are forgiven under an IDR plan, the amount canceled could be subject to federal taxes. However, taxes won’t apply to any loans forgiven or discharged through Dec. 31, 2025, due to the American Rescue Plan Act of 2021.
Other relief options
The Biden-Harris Administration is also working on other relief options to assist federal student loan borrowers.
One of these measures is an “‘‘on ramp’ that gives borrowers leeway to begin resuming payments for 12 months (from Oct. 1, 2023, to Sept. 30, 2024) without reporting late or missed payments to the credit bureaus,” says Jonathan McCollum, chair of federal government relations for New York-based law firm Davidoff Hutcher & Citron.
“The Administration has also put in place a host of measures under the SAVE plan, which will offer at least some small bit of relief to overburdened borrowers,” says McCollum. “The ultimate goal remains not only concrete debt relief but also the long-term reduction of higher education costs that have outpaced Americans’ ability to pay.”
Frequently asked questions (FAQs)
No, student loan debt hasn’t been canceled. The Supreme Court ruled against the Biden-Harris Administration’s proposed federal student loan forgiveness plan on June 30, 2023. If you applied for forgiveness under this plan before it was struck down, you unfortunately won’t receive it.
If you have federal student loans, there are several forgiveness programs available. To be eligible, you typically must be employed by an eligible organization or in a certain field. For example, you might qualify for PSLF if you work full time for a government or nonprofit organization for 10 years and make 120 qualifying loan payments.
While the Biden administration’s 2022 student loan forgiveness plan would have benefited millions of federal loan borrowers, the biggest downside was the total cost. Data from the University of Pennsylvania suggests that this forgiveness program would have cost up to $519 billion. Experts also expressed concern that some of this cost would be passed down to taxpayers and could lead to inflation and other possibly negative impacts.
The downsides of other federal student loan forgiveness options vary depending on the program. For example, while forgiveness through PSLF is tax-free, amounts forgiven through an IDR plan could be subject to federal taxes. You might also see a slight drop in your credit score if the canceled debt affects your credit mix, though this is usually only temporary.
Student loan forgiveness isn’t an automatic process. If you qualify, you’ll need to submit an application for the appropriate program as well as any other required documentation through the Department of Education. After you apply, your student loan servicer will confirm your eligibility for loan forgiveness, and if you qualify, some or all of your balance will be forgiven, depending on the program.
Your forgiven balance should then be noted on your loan statements from your servicer. You can also verify if your loans have been canceled by logging into your StudentAid.gov account, checking with your servicer or reviewing your credit report.
Blueprint is an independent publisher and comparison service, not an investment advisor. The information provided is for educational purposes only and we encourage you to seek personalized advice from qualified professionals regarding specific financial decisions. Past performance is not indicative of future results.
Blueprint has an advertiser disclosure policy. The opinions, analyses, reviews or recommendations expressed in this article are those of the Blueprint editorial staff alone. Blueprint adheres to strict editorial integrity standards. The information is accurate as of the publish date, but always check the provider’s website for the most current information.
