The much-awaited student loan forgiveness plan revealed by President Joe Biden contained up to $20,000 in federal student loan forgiveness for tens of millions of borrowers. The suggestion for a new income-driven repayment plan was also included in the plan, along with an extension of the student loan payment suspension.
What is Student Loan Forgiveness ?
US Student loan forgiveness or loan repayment programs are among the best options for college graduates who are anxious about their debt. These programs promise to forgive some or all of your student loan debt in exchange for participating in particular professions, serving in the military, or simply performing volunteer work.
Borrowers who receive student loan forgiveness are released from the requirement to repay all or a portion of their federal student loan debt. To cover the cost of their post-secondary education, these borrowers have taken out loans. Some debt kinds are eligible for forgiveness, but only those who work in the military, teaching, or public service are eligible.
Such initiatives can forgive student loans worth a few thousand dollars or more than $100,000. Ironically, few grads apply to many of these programs, suggesting that many graduates are utterly ignorant of these opportunities.
Key Facts of Federal Student Loan Forgiveness
- The elimination of all or a portion of a borrower's federal student loan obligation is known as student loan forgiveness.
- Private loans are not covered by loan forgiveness because only federal direct loans are eligible.
- Working in public service entitles you to school loan relief.
- Under the category of borrower defense, students who believe their educational institution has cheated them may seek for loan forgiveness.
- Federal loans may also be discharged under circumstances beyond the borrower’s control.
How US Student Loan Forgiveness Works ?
Long-standing worries about the rising cost of student debt have grown as a result of the recent, widely reported failure of several for-profit universities and the pandemic-caused 2020 economic disaster. A hotly contested political topic is the broad loan forgiveness for all borrowers, not just those who work in public service, take part in a repayment plan, or were taken advantage of by their education.
Loan forgiveness, also known as debt elimination or forgiveness in finance, refers to the release of the borrower from the responsibility to repay a loan (or a portion of a debt). Although theoretically any student loan could be forgiven, student loan forgiveness typically only applies to loans issued or backed by the United States government. 92% of the nation's total student loans are comprised of these loans.
In other words, even if the loans are designated for students, the widely publicized forgiveness programs do not apply to any privately issued loans, such as those from a commercial bank or lenders like Sallie Mae.
Borrowers may be able to get their loans cancelled or forgiven in specific circumstances. People who want their loans forgiven must apply, and they might need to keep paying until their request is accepted.
While many debtors would love to be free of their student debt, due to the tight eligibility requirements, few few actually receive the chance to do so. The requirements vary depending on the type of loan, but the majority only grant forgiveness to people who work in specific public sector occupations. These people include teachers, government workers, soldiers, and AmeriCorps volunteers.
Additionally, not all federal loans qualify. Direct loans, Stafford loans, and Federal Family Education Loans are the most common types of student loans that are eligible for forgiveness, especially for certain special groups like teachers.
Additionally, student loan borrowers can choose from repayment programs that include partial debt discharge or forgiveness.
Who Qualifies for Student Loan Forgiveness ?
Make sure you genuinely qualify before you even think about asking for student loan forgiveness under the new Biden administration scheme. Here are the requirements that you must fulfill.
- You currently have a federal student loan.
- You earn less than $125,000 a year or your household earns less than $250,000 a year
- You get Pell Grants, and the Department of Education is holding your loans (this is required for additional forgiveness)
Make sure to look over the options offered by private loan lenders if neither of the aforementioned situations apply to you nor if you have a private student loan. If you want to save money in the long run, refinancing your student loans is an excellent choice. This process entails replacing your current loan with a new one that can have a better interest rate.
To follow what is likely to be a difficult procedure involving student loan forgiveness, go to StudentAid.gov/DebtRelief.
What Types of Student Loans Qualify ?
Almost all federal student loans, including direct subsidized or unsubsidized loans, graduate loans, and parent PLUS loans, are eligible for forgiveness. There is no forgiveness available for private student loans.
Types of Student Loan Forgiveness
To be eligible for loan forgiveness or repayment assistance, you must fulfill a number of extremely strict criteria. You don't have to pay back your debt in full or in part if you receive loan forgiveness. Check out the alternatives we've provided below; you never know what you might be qualified for.
1) Teacher Loan Forgiveness :
You may qualify for forgiveness of up to a combined total of $17,500 on eligible federal student loans if you teach full-time for five consecutive academic years in selected elementary or secondary schools or educational service organisations that serve low-income families and satisfy other requirements.
2) Public Service Loan Forgiveness (PSLF) :
After making 120 qualifying payments—or 10 years of payments—and if you are employed full-time by the government or a non-profit, you may be eligible to have your Direct Loans' entire outstanding balance forgiven. You should repay your federal student loans using an income-driven repayment plan in order to qualify for PSLF. Discover more about PSLF right now! If PSLF interests you, you can create a form to send to MOHELA, the PSLF servicer, using the PSLF Help Tool. You may be qualified for Temporary Expanded Public Service Loan Forgiveness if PSLF refused you loan forgiveness because some or all of your Direct Loan payments were paid under an unapproved repayment plan.
3) Income-Driven Repayment (IDR) Plans :
Any outstanding balance on your student loans will be forgiven if you choose a repayment strategy based on your income after you have made a specific number of payments over a specific amount of time.
4) Military Service :
The U.S. Department of Education and the U.S. Department of Defense both offer exceptional perks and loan repayment choices in appreciation for your service to our nation. Benefits include interest rate restrictions provided by the Department of Defense's student loan repayment programs and the Service-members Civil Relief Act.
5) AmeriCorps :
Participants who complete a term of national service in one of the authorised AmeriCorps programs—AmeriCorps VISTA, AmeriCorps NCCC, or AmeriCorps State and National—are eligible to receive the Segal AmeriCorps Education Award. You are qualified to receive a Segal AmeriCorps Education Award after successfully completing your service, which you can use to pay back eligible student loans.
6) Other Options :
If you need assistance repaying your federal student loans but none of the aforementioned options apply to you, speak with your loan servicer about your options.
- Reduce your monthly payments by changing your repayment strategy.
- Consolidate many federal loans into a single loan for a potential reduction in monthly payments.
- To temporarily delay or lower your payments, submit an application for deferral or forbearance.
How Much is Student Loan Forgiveness ?
As of December 2024, the U.S. government has implemented several student loan forgiveness initiatives, with more anticipated in 2025. Notably, on December 20, 2024, President Biden approved an additional $4.28 billion in student debt relief for nearly 55,000 public service workers, bringing the total loan forgiveness to approximately $180 billion for nearly five million Americans.
However, the Biden administration has also retracted proposals aimed at offering student loan forgiveness to nearly 8 million borrowers experiencing significant financial hardships, such as medical bills, childcare, and economic impacts from natural disasters. This decision was made to prioritize other objectives before the upcoming presidential inauguration.
Looking ahead to 2025, the future of student loan forgiveness programs may be influenced by the incoming administration. The Biden administration has expressed support for student loan relief, but the specifics of future initiatives remain uncertain. For instance, the "Project 2025" policy agenda proposes changes that could increase costs for borrowers and potentially block debt cancellation for some.
How to Apply for Student Loan Forgiveness ?
You should make a reminder to submit an application for the forgiveness now that you are aware that you meet the requirements. You can register to be notified by the Department of Education when the application is available. According to White House sources, the application will probably open in early October.
The Department of Education will provide you with an application to fill out, along with detailed instructions. Gather the necessary paperwork so you'll be prepared when the application is made accessible. You'll probably need to show that you fulfill the income requirements and have federal student loan debt.
According to the Education Department, a form for student loan forgiveness will be made accessible in the first few days of October. The Department's StudentAid.gov website provides access to the application, which should be a reasonably simple attestation of income. Contact your loan servicer if you think you qualify.
Following the submission of an application, the Department estimates a turnaround time of four to six weeks. Borrowers will have a full year to submit their application, but officials are urging them to do so by November 15 so that they can receive loan forgiveness before student loan payments resume in January.
Logging into your StudentAid.gov account is advised by the Department to make sure your contact information is accurate. Alerts can also be subscribed to.
Some debtors may qualify for automatic relief if they already have current income data on file with the Department of Education. However, the Department still encourages everyone to apply.
Consolidating all of your student debt into a single debt and then asking for loan forgiveness through the Federal Student Aid's Public Service Loan Forgiveness (PSLF) & Temporary Expanded PSLF (TEPSLF) Certification & Application are the two main components of getting student loan forgiveness.
How Student Loan Forgiveness Will Be Applied ?
The $10,000 or $20,000 student loan forgiveness prize will be applied via a "waterfall" method, according to the Education Department, for borrowers with higher sums. According to the agency, loan forgiveness applications will be processed in the following order of priority:
- Defaulted loans held by the Department of Education.
- Defaulted commercial FFEL Program loans.
- Loans held by the department under the Direct Loan Program and the FFEL Program that have not defaulted.
- Perkins Loans held by the department.
The government will apply the assistance in the following order for borrowers who have several loans in a certain loan program (such as multiple Direct student loans):
- Priority will be given to loans with the highest statutory interest rate.
- Student loan forgiveness will be applied to unsubsidized loans before subsidized loans if interest rates are the same.
- The department will apply the debt forgiveness to the more recent loan if the interest rate and subsidy status are both the same.
- The loan with the lowest total principal and interest balance will receive the loan forgiveness if the interest rate, subsidy status, and disbursement date are all the same.
Student Loan Forgiveness Deadlines
As of December 2024, several student loan forgiveness programs have specific deadlines and transitions scheduled for 2025. Here are some key dates and considerations:
1. Total and Permanent Disability (TPD) Discharge Program Transition:
The U.S. Department of Education plans to transition the TPD Discharge Program to a new servicing system in early 2025. This change will affect how borrowers apply for and track their TPD discharge status. Key dates include:
- December 20, 2024: Nelnet will no longer accept manual TPD assignments.
- January 17, 2025: Nelnet will stop accepting all electronic TPD assignments.
- February 9, 2025: All work-in-process with Nelnet TPD will end, and loan holder communications from Nelnet TPD will cease.
- March 2025: TPD assignment processing is scheduled to resume under the new system.
2. Income-Driven Repayment (IDR) Plan Enrollment:
The Department of Education has reopened applications for two older IDR plans—the Income-Contingent Repayment (ICR) plan and the Pay As You Earn (PAYE) plan. These plans will be available until July 1, 2027. Borrowers currently enrolled in the Saving for a Valuable Education (SAVE) plan, who were placed in forbearance following a federal court's order to pause student loan forgiveness, may consider enrolling in these plans to continue making qualifying payments toward loan forgiveness.
3. Proposed Debt Relief for Borrowers Facing Hardships:
The Biden administration has proposed rules to authorize student debt relief for borrowers experiencing significant financial hardships, such as high medical costs or childcare expenses. If finalized, these rules could provide relief to approximately 8 million borrowers. The proposal is currently in a public comment period and aims to be finalized in 2025. However, the incoming administration may influence the final outcome of this initiative.
Remaining Loan Balances Will be Re-Amortized After Federal Student Loan Forgiveness
The Education Department has confirmed that borrowers whose loans are being repaid on a Standard, Extended, or Graduated repayment plan and who have a balance after receiving a student loan forgiveness award would have their balances re-amortized. To put it another way, the department "will recalculate your monthly payment based on your new debt, possibly reducing your monthly payment." Your new payment amount will be communicated to you by your loan servicer.
During a call with borrower advocates last month, Education Department representatives warned that many borrowers would see a reduction in their monthly payments of up to hundreds of dollars per month as a result of the re-amortization.
Contact
For the most recent details, borrowers should visit StudentAid.gov.
Frequently Asked Questions
Can Interest on Student Loans Be Forgiven?
When a student debt is forgiven in full, the interest on the loan is also forgiven. The loan principle and any fees are then often added on top of it. However, in most cases, you cannot get just the loan interest waived. The interest on your loan will not be due even though it will often continue to accrue if you are granted a deferment. Your major choice is to refinance the debt if you wish to pay less interest on your student loans. If you choose not to make automated payments each month, some lenders will reduce your loan's current interest rate somewhat. This is known as an Automated Clearing House (ACH) discount.
What amount of debt may I have forgiven?
Most federal student loan holders will be eligible for some forgiveness, up to $10,000 if they did not receive a Pell Grant, a sort of financial help accessible to low-income undergraduate students, and up to $20,000 if they did, as President Joe Biden revealed in August. You will only be cleared for the amount you are qualified for if your outstanding student loan balance is less. However, you are entitled to a reimbursement for any payments you paid during the epidemic.
What happens if I still owe money after I've been forgiven?
The average student loan total is above $30,000, so even after forgiveness, many people will still owe money. But if those start up again in January, your monthly payment might be less. This is so that the Education Department can "reamortize" the new balances of the borrowers.
Consider that you have $30,000 in student loan debt that has a 5% interest rate. Prior to the epidemic, you made monthly payments of about $320 over a 10-year period. Your total debt would be lowered by a third if you received $10,000 in student loan forgiveness. Your monthly payment would likewise decrease by a third to approximately $210. The same amount of time still needs to be paid back.
What if I only obtained a Pell Grant in part or only had a Pell Grant for one year?
No matter the quantity or regularity of your Pell Grants, you are still eligible for forgiveness of up to $20,000.
Are graduate-level loans or parent loans acceptable?
Yes, you may be eligible for forgiveness if you have parent PLUS loans or graduate PLUS loans.
Do I have to apply for forgiveness ?
Maybe. Because the Department of Education already has information on their income, nearly 8 million debtors might automatically have their debt forgiven. The Department of Education has stated that everyone else would be required to submit their income data via an easy online application that will be accessible by early October. Within four to six weeks after the application's completion, cancellation will occur.
How will I know when my loans are forgiven?
Once your loans have been forgiven, your servicer will probably keep you informed. Keep an eye out for any email or letter from your servicer, and check your loan balance online frequently.
What happens if I owe more than is forgiven?
Beginning in January, borrowers whose loan balances are higher than the amount forgiven will start making payments again. You might be eligible for a recently introduced income-based repayment plan depending on your balance.
Will there ever be another debt forgiveness like this?
There are no signs that there will be another large-scale student loan debt forgiveness program. Students who were taken advantage of by predatory institutions like ITT Tech may still be eligible for debt forgiveness through the Department of Education. But for the time being, it is improbable that such widespread pardon would ever happen again.
When will the loan cancellation process begin?
Due to the Department of Education already having their pertinent income information on file, about 8 million borrowers will immediately obtain their debt cancellation. Others must wait until the Department of Education releases a straightforward online application in early October; after that, borrowers can anticipate seeing their debt cancellation within four to six weeks of submitting their application.