Student loan forgiveness

Student Loan Forgiveness

Apply For Student Loan Forgiveness

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The White House has announced that the Department of Education (DOE) will cancel a portion of student loans. DOE will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the DOE. Up to $10,000 in debt cancellation will be provided to non-Pell Grant recipients. Again, this is for loans held by the DOE. There are stipulations to qualify for this student loan forgiveness. Student loan borrowers must have an individual income of less than $125,000 ($250,000 for married couples). To facilitate this student loan relief, the pause on federal student loan repayment is being extended through December 31, 2022. As such, federal student loan repayment will begin in 2023. But how do you apply for student loan forgiveness?

This post will not address the fairness of loan forgiveness and will only provide information as to the latest announcement.

Who Will Get Student Loan Forgiveness?

This student loan forgiveness is very targeted in view of those who are eligible to take advantage of this program. According to the White House, current estimates is that nearly 90 percent of relief will go to people earning less than $75,000 and that roughly 20 million borrowers could have their debt completely canceled. The United States is estimated to have a population of 350 million people, so essentially almost 6% of the population will have their student loans completely forgiven. 

The DOE estimates that, among borrowers who are eligible for relief, 21% are 25 years and under and 44% are ages 26-39. More than a third are borrowers age 40 and up, including 5% of borrowers who are senior citizens.

Pell Grants

A specific provision of the federal student loan forgiveness plan is that those who received Pell Grants my have up to $20,000 of their federal student loan debt forgiven. What are Pell Grants? Federal Pell Grants are typically awarded only to undergraduate students who display exceptional financial need and have not earned a bachelor’s, graduate, or professional degree. Unlike a loan, Pell Grants do not have to be repaid, except under certain circumstances.

According to estimates, 7 in 10 college graduates with federal student loans also received a Pell Grant, and Pell Grant recipients have on average an additional $4,500 more debt than other college graduates.

Applying For Student Loan Forgiveness

The White House has noted that applications for federal student loan forgiveness will be made available earliest in about a month to two months. As such, the application is expected in or about October 2022. Once the application is rolled out, borrowers are advised to apply by November 15, 2022. This will allow balances to be lowered or eliminated before the student loan payment pause ends on December 31, 2022.

While some borrowers will need to apply for federal student loan forgiveness, others will not. About 8 million borrowers, whose income is already on file at the DOE will have their loans automatically forgiven without having to apply. For those for whom the DOE does not have a record of their income, they should  sign up on Studentaid.gov to be notified when the federal student loan forgiveness application form goes live.

New Proposal

In additional to federal student loan forgiveness, the DOE is also proposing a new income-driven repayment plan. This plan will cap monthly payments for undergraduate student loans at 5% of a borrower’s discretionary income. This would be half of the rate that borrowers must pay now under most existing plans. This means that the average annual student loan payment will be lowered by more than $1,000 for both current and future borrowers. 

Conclusion

The White House has announced that the DOE will cancel a portion of student loans. DOE will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the DOE. Up to $10,000 in debt cancellation will be provided to non-Pell Grant recipients. Again, this is for loans held by the DOE. There are stipulations to qualify for this student loan forgiveness. Student loan borrowers must have an individual income of less than $125,000 ($250,000 for married couples). To facilitate this student loan relief, the pause on federal student loan repayment is being extended through December 31, 2022. As such, federal student loan repayment will begin in 2023. Sign up on Studentaid.gov to be notified when the federal student loan forgiveness application form goes live.

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praying for student loan forgiveness

Is Student Loan Forgiveness Fair?

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It does not matter how much is forgiven and it really does not matter the reason. Forgiving student loans is a divisive issue. There is one main group that will directly benefit from student loan forgiveness. This group includes those for whom student loans are forgiven. On the other hand, there will aways be a number of groups that will be aggrieved. This group of the aggrieved includes at least those who have paid off their student loans, those who never took out student loans and those who did not have the opportunity to take out student loans because they did not attend college.

Student Loan Forgiveness

There is a student loan problem. Some students were victims of predatory lending from opportunist institutions. In some cases, students were given loans and then obtained worthless degrees. In some cases, the institutions were not up to par academically. For some, the college was closed down and students were stuck with student loans but no degree. For others, student loan terms were not clearly explained and students now owe more than they borrowed. In all cases, for those affected, it is likely that they are stuck with a mountain of student loans and no true path to ever pay off the borrowed amount plus the accruing interest.

On balance, should these students have done their due diligence? Should these students have read the fine print and better understood what they were signing up for? Also, should there have been more government oversight to prevent institutions from selling these subprime student loans to vulnerable students? Something to think about.

Students Who Paid Back Their Student Loans

There are some students and adults who have now paid back their student loans. Essentially, they made it a priority to not take out more than they needed during their school years. Many of these individuals did not attend their dream school because of the cost. Instead, they settled for a less expensive option. They may have also worked extra jobs. Some did not take fancy spring break trips while in college. Others have forgone buying nicer homes or cars. Instead of spending, these students were cost conscious. They buckled down and payed back their student loans.

How would you feel if you were one of these students when you hear of others getting student loan forgiveness? You will likely feel robbed. You have made the sacrifices and paid back what you owed. Now, you are being penalized for your diligence, being proactive and responsible. Would you view this a being fair?

Students Who Did Not Take Out Student Loans

Let’s face it, we live in an unequal society. There are a group of students who attended college and did not have the need to take out student loans. This could have been a result of their parents saving over time and allocating funds specifically for college. For others, their parents were in the position to pay their tuition as they went through college. Still, there are many who simply worked during college and were able to make enough to pay their costs or obtained scholarships.

For those who prepaid for college, those who worked multiple jobs to pay their tuition, and those who studied and obtained scholarships, how is student loan forgiveness viewed? Will they view student loan forgiveness as a penalty? Why work hard during college and forgo all the parties, why prepay for college, why work hard and obtain scholarships when the student loans will be forgiven anyway? 

Those Who Did Not Attend College

Of the groups that will likely view student loan forgiveness in a bad light, those who did not attend college will likely be the most upset. They are the most likely to be upset because as tax payers, they may view student loan forgiveness as paying for something they did not have the opportunity to part take in. These individuals are essentially paying for someone else’s college education or mistake. They may also see student loan forgiveness being applied to college educated citizens as causing a further divide between the have and the have nots. Some who will be helped by student loan forgiveness, where they attended reputable colleges, may end up earning more than those who did not attend college. So in effect, as a tax payer, those who did not attend college would be further subsidizing these individual’s lifestyle. For many, this will be viewed as being unfair. 

The Greater Good

No matter your stance on student loan forgiveness, one thing to consider in this student loan forgiveness debate is the greater good. Will forgiving a portion of student loans help the overall society in general terms. If citizens are not buried by student loan payments, will this translate into increase economic activity as more funds will be available to spend. If this works perfectly, all of society will benefit. However, will this affect personal responsibility and the motivation to live within ones means if there is a possibility that your debt will be forgiven?

Whatever the decision with regard to student loan forgiveness, one thing is for sure, the debate will continue.

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Video Summary

Student Loan Forgiveness

Your Student Loan Forgiveness Options

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There is an on going debate with regard to student loans and student loan forgiveness. Some are asking for partial student loan forgiveness. Others are calling for a total forgiveness. Some would like to reform repayment options. While many are of the belief that changes to the current system are unwarranted. This article will review current student loan forgiveness provisions as they stand today.

Student Loans

Current Student Loan forgiveness

Before we review the different student loan forgiveness programs, it is important to know the difference between student loan forgiveness, cancellation and discharge. According to the U.S. Department of Education, if you are no longer required to make payments on your loans due to your job, this is generally referred to as student loan forgiveness or cancellation. On the other hand, the U.S. Department of Education notes that if you are no longer required to make payments on your loans due to other circumstances, such as a total and permanent disability or the closure of the school where you received your loans, this is generally called a student loan discharge. 

Now that we have an understanding of the differences between student loan forgiveness, cancellation and discharge, below is a general review of available programs.

Public Service Loan Forgiveness (PSLF)

The PSLF program is generally available to those who are employed by a government or not-for-profit organization. The PSLF program allows for the forgiveness of any remaining balance on Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer. While the requirements may appear simple, it is important to ensure that you satisfy the requirements of this program. Ensure that your payment plan, payments and employer satisfy the requirements of this program. For further information on how to apply and related qualifications with regard to the PSLF program, please click here.

Teacher Loan Forgiveness

Teacher’s loan forgiveness may be available for those who teach full-time for five complete and consecutive academic years in a low-income elementary school, secondary school, or education service agency. Under the Teachers Loan Forgiveness program, you may be eligible for forgiveness of up to $17,500. Specifically, forgiveness may be for your Direct Loan or FFEL Program loans. For further information on the Teacher Loan Forgiveness program, please click here.

Closed School Discharge

Some are in the unfortunate position of having their school close while they are enrolled or soon after they withdraw from the school. Thankfully, these individuals may be eligible to discharge federal student loans accumulated during time at the school. The closed school discharge program is available for Direct Loans, FFEL Program loans, and Perkins Loans. For further information on the Closed School Discharge program, please click here.

Perkins Loan Cancellation and Discharge

The Perkins Loan Cancellation and Discharge program is available for Federal Perkins Loans only. You may be eligible to have all or a portion of your Federal Perkins Loan canceled (based on your employment or volunteer service) or discharged (under certain conditions) under this program. This also includes Perkins Loan Teacher Cancellation. For further information on the Perkins Loan Cancellation and Discharge program, please click here.

Total and Permanent Disability Discharge

Direct Loans, FFEL Program loans, and Perkins Loans may be discharged if you are totally and permanently disabled. You may also be eligible to have your Teacher Education Assistance for College and Higher Education (TEACH) Grant service obligation discharge if  you are totally and permanently disabled. For further information on the Total and Permanent Disability Discharge program, please click here.

Discharge Due to Death

In the unfortunate event of death, federal student loans may be discharged due to the death of the borrower or of the student on whose behalf a PLUS loan was taken out. Discharge due to death is available for Direct Loans, FFEL Program loans, and Perkins Loans. For further information on Discharge Due to Death, please click here.

Discharge In Bankruptcy

Student loan holders in rare cases may discharge Direct Loans, FFEL Program loans, and Perkins Loans in bankruptcy. Note that this process is not automatic and we stress, rarely can you discharge student loans in bankruptcy. For more information of student loan forgiveness and cancellation, please click here.

Borrower Defense To Repayment

The Borrower Defense to Repayment program is available if you took out loans to attend a school and the school did something or failed to do something related to your loan or to the educational services that the loan was intended to pay for. This program allows you to discharge your federal student loans based on borrower defense to repayment. The requirements for this program is very specific. Note that the specific requirements to qualify for a borrower defense to repayment discharge vary depending on when you received your loan. For further information on the Borrower Defense to Repayment program, please click here.

False Certification Discharge

For those with Direct Loans and FFEL Program loans, you may be eligible for the False Certification Discharge program. The False Certification Discharge program is available under a very specific situation. You may be eligible for discharge of your federal student loan if your school falsely certified your eligibility to receive the loan. For further information on the False Certification Discharge program, please click here.

Unpaid Refund Discharge

The Unpaid Refund Discharge program is available for a specific situation. If you withdrew from school and the school did not make a required return of loan funds to the loan servicer, you may be eligible for discharge of the portion of your federal student loan(s) that the school failed to return. In particular, this program is available for Direct Loans and FFEL Program loans. For further information on the Unpaid Refund Discharge program, please click here.

Conclusion

There is an on going debate with regard to student loans and student loan forgiveness. Some are asking for partial student loan forgiveness. Others are calling for a total forgiveness. Some would like to reform repayment options. Still, many are of the belief that changes to the current system are unwarranted. Whatever your thought on the current situation, we can all agree that student loans can be a detriment to financial independence. Knowledge is power, if you have student loans, know the programs that are available to you.

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