- While broad student loan forgiveness arrived in August 2022, the federal government has also instituted other changes that can mean some graduates pay less.
- Many of these changes amount to an expansion of existing loan forgiveness and discharge programs.
- If you’re on a repayment plan, you could benefit, too.
- Some programs require you to apply in order to take advantage of them.
If you have student loans you’re repaying or need to start repaying soon, no doubt you’ve been following all the news about the possibility of actually not having to pay back some or possibly all of what you owe. President Biden has provided more federal student loan forgiveness than any previous president and, until late August, it had been limited to improvements to existing student loan forgiveness and discharge programs.
On Aug. 24, the Biden Administration announced broad student loan forgiveness of up to $20,000 in federal student debt for eligible borrowers. While the plan offers unprecedented and substantial relief, it stops far short of total student loan forgiveness. However, there are existing programs that can erase all of part of your student loan balance.
Existing forgiveness programs involve canceling loans in exchange for some type of public or volunteer service. The discharge programs are for those with a valid reason for not paying back a loan; say, if you have a disability.
According to the U.S. Department of Education, more than 43 million Americans have outstanding student loans, including 69% of students graduating with bachelor’s degrees. The average amount for these graduates? Around $30,000.
So, what options are available for student loan forgiveness? How can you tell if you qualify for it and what do you need to do?
Inside this article
Targeted relief under existing student loan forgiveness programs
Since January 2021, the U.S. Department of Education has provided more than $17 billion in targeted relief to more than 850,000 student loan borrowers. Here’s how that all breaks down:
Improvements to Existing Programs
The main component of student loan relief has been in the following areas for federal loans:
Total and Permanent Disability Discharges: This cancels your debt if you’re unable to engage in substantial gainful employment because of a physical or mental disability that has lasted or is expected to last for at least five years. It requires a VA or Social Security Administration (SSA) determination or doctor’s certification of the disability.
Borrower Defense to Repayment Discharges: This cancels your debt if your college engaged in certain fraudulent, deceptive or illegal practices involving student loans or the education provided.
Closed School Discharges: This cancels debt if your college closed while you were enrolled or within 180 days of your withdrawal.
Teacher Loan Forgiveness: This forgives up to $17,500 of your student loans if you teach full-time in a low-income K-12 school for five years.
Public Service Loan Forgiveness (PSLF): This forgives your remaining federal student loan debt if you make 120 qualifying payments on your federal student loans in an income-driven repayment plan in the Direct Loan program while working full-time in a qualifying public service job.
Interest waivers for members of the U.S. Armed Forces: This temporarily sets the interest rate on federal student loans to zero for up to five years while you’re serving on active duty in a combat area.
False Certification Discharges: This forgives your loan for several reasons, including due to identity theft when someone unlawfully takes out a loan in your name, or if a college falsely certified your eligibility for a loan.
Continuation of the Payment Pause and Interest Waiver
President Biden has extended the student loan payment pause and interest waiver five times, through Dec. 31, 2022, after President Trump extended it twice, at a cost of about $5 billion a month. This is for anyone who has a federal education loan that’s held by the U.S Department of Education.
You could say that the payment pause and interest waiver is a form of loan forgiveness for those in the PSLF program or who are in an income-driven repayment plan (which can be for any federal loan), since those missed payments count toward the number of payments required to qualify for forgiveness in those programs (as stated above, 120 payments for the PSLF program, and for the income-driven repayment plan, forgiveness after 240 or 300 payments, depending on the plan you have). In effect, the payment pause has provided more than two years of payments toward loan forgiveness.
Tax-Free Debt Forgiveness
In addition, Biden’s American Rescue Plan Act of 2021 made all student loan forgiveness and student loan discharges tax-free through December 31, 2025. While canceled debt in the PSLF program has always been tax-free, previously, if you had canceled debt in an income-driven repayment plan, it would count as income, and you’d have to pay taxes on it.
For example, suppose you borrowed $30,000 for college and have been paying down the balance for 20 years in an income-driven repayment plan and have $18,000 remaining. At the end of the 20 years, the $18,000 in remaining debt would be canceled, and now that student loan forgiveness is tax-free, that $18,000 will not be reported as income (assuming you qualify for forgiveness before the Dec. 31, 2025 deadline).
Tip: Additional enhancements to existing student loan forgiveness programs may be implemented if new regulations are issued. If the final rules are published in the Federal Register by November 1, 2022, the new rules will be effective starting on July 1, 2023. However, the U.S. Department of Education has the ability to adopt the new regulations sooner in some circumstances. So keep checking here for the latest news.
How to apply for current student loan forgiveness programs
Some types of student loan forgiveness are now automatic, but some you’ll have to apply for. The ones that are automatic are:
The Total and Permanent Disability (TPD) Discharge is made automatically once a quarter if you qualify because of a VA or SSA determination. You are not required to apply for the disability discharge. However, if you qualify for a TPD discharge because of a doctor’s certification, you must still apply.
The interest waiver for members of the U.S. Armed Forces is also now automatic.
The forgiveness of the remaining balance after 20 or 25 years of payments in an income-driven repayment plan is automatic.
The types of student loan forgiveness that still require you, the borrower, to submit an application form are below. To get an application form, contact the loan servicer or call 1-800-4-FED-AID (1-800-433-3243), or click on the link to the form you want here:
· False Certification Discharge (see three forms under Discharge and Forgiveness)
More on the temporary Public Service Loan Forgiveness waiver
Public Service Loan Forgiveness (PSLF) is complicated. You must make 120 qualifying on-time payments on loans in the Direct Loan program in an income-driven repayment plan while working full-time in a qualifying public service job.
Tip: Not sure what kinds of jobs qualify for the Public Service Loan Forgiveness? Check out the PSLF Help Tool to find out.
To make qualifying easier, Congress subsequently created Temporary Expanded Public Service Loan Forgiveness (TEPSLF) to allow loans to be repaid in the graduated and extended repayment plans (provided that the last year of payments are at least as much as they would have been under an income-driven repayment plan). Even so, only 3% of borrowers who applied for loan forgiveness under the PSLF or TEPSLF programs have been approved.
So to reach more borrowers, the U.S Department of Education has broadened what qualifies for loan forgiveness in the PSLF program. It has created a temporary PSLF waiver that is available through Oct. 31, 2022, if you apply for loan forgiveness or file an Employment Certification Form (ECF) through the PSLF Help Tool by the deadline. The waiver will count the following payments toward PSLF, provided you were working full-time in a qualifying public service job at the time the payments were made:
Payments made on loans in the Federal Family Education Loan Program (FFELP) or Federal Perkins Loan Program prior to consolidation. You must consolidate the loans into a Federal Direct Consolidation Loan and apply for PSLF or file an ECF on the consolidation loan by the deadline
Payments made in any repayment plan
Military service deferments—these will count as though the payments had been made
You should submit a new ECF even if you previously submitted an ECF to ensure your loans qualify under the temporary PSLF waiver.
Tip: If your parents took out a Federal Parent PLUS Loan to fund your college education, it does not qualify for the temporary PSLF waiver for public service. However, they are still eligible for the PSLF.
Practical advice for borrowers
Besides making sure you apply for the loan forgiveness programs above, there are some practical tips you should consider.
Check Your Contact Info
First, you should keep your contact information up-to-date with your loan servicer and on StudentAid.gov so that the U.S. Department of Education can inform you about new loan forgiveness options.
Look at All the Fine Print
Current loan forgiveness options are complicated, so it is important to pay attention to the details. There are many ways a borrower can make a mistake that causes them to lose loan forgiveness. For instance, if you are trying to qualify for the PSLF program, you must work directly for the government and not for a contractor who works for the government.
After the payment pause and interest waiver expire, if you’re interested in refinancing your federal student loan, you may face a trade-off between lower interest rates on private student loans and the possibility of loan forgiveness. Interest rates on private student loans are at or near record lows for borrowers with excellent credit, but student loan forgiveness may be limited to just federal student loans.
There’s no need to rush into a refinance. Although interest rates on private student loans have started increasing, they won’t increase by too much by the end of the year. There’s plenty of time to wait for the possibility of loan forgiveness before pursuing a refinance. After all, you’ll feel foolish if you refinance now when you might have qualified for student loan forgiveness soon afterward.
Of course, nothing should stop you from refinancing private student loans, if you can qualify for a lower interest rate.