How can people get rid of their student loan debt and when is loan forgiveness an option? Statistics show how deep in student loan debt U.S. college graduates are and the sums can be alarming to individual borrowers. Fortunately, students may be able to take advantage of income-based repayment plans and forgiveness for public service employees to ease their debt burdens.
- Forgiveness is the best kind of student loan debt relief, but programs are limited.
- Income-driven repayment plans and Public Service Loan Forgiveness (PSLF) can erase people’s remaining debt after many years of payments.
- Only federal student loans qualify for forgiveness programs.
- Forgiveness can leave recipients with a big tax bill.
- On Nov. 22, 2022, the Department of Education announced a new extension of the student loan repayment pause.
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Student Loan Forgiveness: Which Loans Are Eligible?
Only direct loans made by the federal government and Stafford loans, which were replaced by direct loans in 2010, are eligible for forgiveness programs.
If you have other kinds of federal loans, you might be able to consolidate them into one direct consolidation loan, which may give you access to additional income-driven repayment plan options. Nonfederal loans by private lenders and loan companies do not qualify for forgiveness.
In 2020, borrowers with federal student loans who attended for-profit colleges and sought loan forgiveness because their school defrauded them or broke specific laws were dealt a setback when then-President Donald Trump vetoed a bipartisan resolution, which would have overturned new regulations that make it much more difficult to access loan forgiveness. The new, more onerous regulations went into effect on July 1, 2020.
In August 2022, the Biden administration, along with the U.S. Department of Education, approved $32 billion in student loan debt relief for more than 1.6 million borrowers with applications open in October. However, in November 2022, federal courts issued orders blocking the student loan forgiveness plan. As such, the Department of Education is no longer accepting applications for student loan forgiveness.
The following specific programs are still available and offer applications and debt relief to those who qualify.
Income-Driven Repayment Plan Forgiveness
For federal student loans, the standard repayment period is 10 years. If a 10-year repayment period makes your monthly payments unaffordable, you can enter an income-driven repayment (IDR) program.
Income-driven programs stretch out payments for a term of 20 or 25 years. After that term, assuming you’ve made all of your qualifying payments, whatever balance is left on the loan is forgiven. Payments are based on your household income and family size, and they will typically be capped at 10%, 15%, or 20% of your discretionary income, depending on the plan.
Below are the four types of IDR plans offered by the U.S. Department of Education, in addition to the repayment periods and monthly payments of each:
- Revised Pay as You Earn Repayment (REPAYE) Plan: The repayment period for this plan is either 20 years for undergraduate study loans or 25 years for graduate or professional study loans. Monthly payments are typically 10% of your discretionary income.
- Pay as You Earn Repayment (PAYE) Plan: The repayment period for this plan is 20 years. Monthly payments are typically 10% of your discretionary income, but they cannot exceed the 10-year Standard Repayment Plan amount.
- Income-Based Repayment (IBR) Plan: If you didn’t already have an outstanding balance when you received a direct loan or Federal Family Education Loan (FFEL) on or after July 1, 2014, then the repayment period for this plan is 20 years, and monthly payments are typically 10% of your discretionary income. Conversely, if you did have an outstanding balance when you received a direct loan or an FFEL on or after July 1, 2014, the repayment details are different. In such a case, the repayment period is 25 years, and monthly payments are typically 15% of your discretionary income. In both cases, monthly payments cannot exceed the 10-year Standard Repayment Plan amount.
- Income-Contingent Repayment (ICR) Plan: The repayment period for this plan is 25 years. Monthly payments are either 20% of your discretionary income or the equivalent amount for a repayment plan with a fixed 12-year payment, adjusted according to your income, whichever is smaller.
An IDR plan can be a good option for people in low-paying careers who have large amounts of student loan debt. Eligibility varies among plans, with some types of federal loans being ineligible for repayment under all but one plan. Additionally, you will have to recertify your income and family size annually, even if neither has changed from one year to another.
How to Apply
Applying for an IDR requires you to submit an Income-Driven Repayment Plan Request, which can be completed online or via a paper form, the latter of which you must request from your loan servicer. You can either choose a specific IDR plan by name or ask that your loan servicer place you on the income-driven plan that you qualify for with the lowest monthly payment amount.
If any of the loans that you wish to include in an IDR plan have different loan servicers, you will have to submit a separate request to each of them.
To determine your eligibility for specific plans and calculate your monthly payment, you will have to provide either your adjusted gross income (AGI) or alternative income documentation. If you’ve filed a federal income tax return in the prior two years, and your current income is largely the same as that reported on your most recent return, then you will use your AGI. If you are unable to meet either of these criteria, then alternative documentation of income will be required.
- When applying online, you can use the Internal Revenue Service (IRS) Data Retrieval Tool to pull your AGI information from your federal income tax return. Alternatively, if applying with a paper form, you will need to include a printed copy of your most recently filed federal income tax return or IRS tax return transcript.
- If you are currently receiving taxable income, you are limited to the paper Income-Driven Repayment Plan Request and must include alternative documentation of your income such as a pay stub. However, if you currently have no income or receive untaxed income, then you can indicate that on either application and won’t be required to supply any further documentation.
Teacher Loan Forgiveness Program
Student loan forgiveness for teachers can allow the forgiveness of up to $17,500 in federal direct and Stafford student loans (but not Parent Loan for Undergraduate Students (PLUS) or Perkins loans). Teachers must teach for five complete and consecutive academic years and teach at a qualifying low-income school or educational service agency.
What Counts as a Completed Year?
Even if you were unable to complete a full academic year of teaching, it may still be counted toward the required five academic years if:
- You completed at least half of the academic year.
- Your employer considers your contract requirements for the academic year fulfilled for the purposes of salary increases, tenure, and retirement.
- You were unable to complete the academic year because you either returned to post-secondary education in an area of study directly related to the five academic years of qualifying teaching service, had a condition covered under the Family and Medical Leave Act (FMLA) of 1993, or were called to more than 30 days of active duty as a member of a reserve component of the U.S. armed forces.
Qualified teachers have at least a bachelor’s degree, and full state certification, and have not had certification or licensure requirements waived on an emergency, temporary, or provisional basis, with additional qualifications varying based on whether or not they are new to the profession.
Only full-time science and math teachers at the secondary level, as well as special education teachers at the elementary or secondary level, are eligible for $17,500 in forgiveness. Forgiveness is capped at $5,000 for other full-time elementary or secondary education teachers.
If you had an outstanding balance on a direct loan or an FFEL on Oct. 1, 1998, or have had one since then, then you will be ineligible for the program. Additionally, only loans made before the end of your five academic years of qualifying teaching service will be eligible for Teacher Loan Forgiveness.
You can potentially qualify for both the Teacher Loan Forgiveness and Public Service Loan Forgiveness (PSLF) programs, but you can’t use the same years of teaching service to meet the eligibility requirements for both programs. So you would need 15 years of teaching service to qualify for both programs, in addition to meeting all the specific requirements to earn each type of forgiveness.
How to Apply
Once you have finished your five complete and consecutive years of qualifying teaching, applying for the Teacher Loan Forgiveness Program only requires submitting a completed Teacher Loan Forgiveness Application to your loan servicer.
If any of the loans that you wish to have forgiven under the Teacher Loan Forgiveness Program have different loan servicers, you will have to submit a separate form to each of them.
The application’s certification section will have to be filled out by the chief administrative officer of the school or educational service agency where you undertook your qualifying teaching service, meaning that you will need to send them the form before you can submit it.
Public Service Loan Forgiveness (PSLF)
If you have a full-time job with a U.S. federal, state, local, or tribal government or with a nonprofit organization, you may qualify for student loan forgiveness. You’ll need to make 120 payments, which don’t have to be consecutive, under a qualifying repayment plan to be eligible.
This option isn’t for the recent graduate, as it takes at least 10 years to earn. Additionally, you’ll need to either have a federal direct loan or consolidate your federal loans into a direct loan.
Unfortunately, this program has been rife with controversy. The U.S. government created the PSLF program in 2007, and when the first borrowers became eligible for forgiveness in 2017, almost all of their applications were denied, often over technicalities. In some cases, borrowers found that their loan servicers had misled them about their eligibility for the program.
Temporary Expanded Public Service Loan Forgiveness (TEPSLF) might help you if your Public Service Loan Forgiveness (PSLF) application was previously denied.
On Oct. 6, 2021, the Education Department announced temporary changes to the PSLF program that allowed borrowers to receive credit for past payments regardless of payment plan or loan program and regardless of whether payments were made on time or in the full amount.
Many of the previous requirements for PSLF were waived as part of the change, with two key requirements remaining:
- You must have been a full-time employee or qualifying employee when the prior payments were made.
- All loans must be federal direct student loans or consolidated into a direct loan program by Oct. 31, 2022.
The waiver also allowed active-duty service members to count deferments and forbearances toward PSLF. The final major change involved in this update is that the U.S. government reviewed denied PSLF applications for any errors and allowed borrowers to have their PSLF determination reconsidered.
The limited PSLF waiver opportunity described above ended on Oct. 31, 2022.
How to Apply
All FFEL loans or Perkins loans must have been consolidated into direct consolidation loans by Oct. 31, 2022. You can’t receive credit for time in repayment if you consolidated and submitted your PSLF form after that date.
Applying for PSLF boils down to a four-step process, each of which requires utilizing the online PSLF Help Tool:
- Search with the PSLF Help Tool to determine if you work for a qualifying employer.
- Have your employment for each year certified by the official who is authorized to do so by your employer.
- Apply for forgiveness once you’ve met all of the program requirements.
- Sign your PSLF form and submit it to the PSLF servicer.
For the final step, send the completed form, along with your employer’s certification, to MOHELA, the U.S. Department of Education’s federal loan servicer for the PSLF Program. If MOHELA is already your loan servicer, you may upload your PSLF form directly to their website.
Alternatively, you can fax your PSLF form to 866-222-7060 or mail it to the following address:
U.S. Department of Education
633 Spirit Drive
Chesterfield, MO 63005-1243
Student Loan Forgiveness Is Not the Same as Forbearance
Forgiveness eliminates your debt; forbearance postpones your payments. If you’re having trouble making student loan payments, you can ask your lender for forbearance. Your lender may not give you a forbearance if you don’t meet eligibility requirements, such as being unemployed or having major medical expenses.
Interest on your loan will still accrue, and you can pay that interest during the forbearance period if you want. If you don’t pay it, the accrued interest will be added to your principal balance once your forbearance period is up. Your new monthly payment will be slightly higher as a result, and you’ll pay more interest in the long run.
The only relationship between forbearance and forgiveness is that when you’re in forbearance, since you’re not making payments, you’re not making progress toward the payment requirements of a forgiveness program that you might be participating in.
CARES Act Automatic Federal Student Loan Forbearance
For student loans administered by the U.S. Department of Education, the federal government granted automatic forbearance under the Coronavirus Aid, Relief, and Economic Security (CARES) Act through Dec. 31, 2022.
On Nov. 22, 2022, the Department of Education announced a new extension of this pause on federal student loan repayments, interest, and collections. The pause will continue until either one of the following dates:
- 60 days after the Department of Education is permitted to implement the debt relief program, or the litigation involving the program is resolved.
- 60 days after June 30, 2023.
During the pause, and contrary to some typical forbearance consequences described above, no interest accrues and payments are not required. No late fees will apply if you stop paying during this period. You’ll know you have this benefit if you see a 0% interest rate when you log in to your student loan account.
Under normal circumstances, you can’t make progress toward loan forgiveness during forbearance. Importantly, though, under the CARES Act, you can. You’ll receive credit toward income-driven repayment forgiveness or PSLF for the payments that you normally would have made during this period.
Earlier, on March 30, 2021, the U.S. Department of Education extended the pause benefit to defaulted privately held loans under the FFEL Program.
There may be tax obligations tied to any loan forgiveness.
Potential Pitfalls of Forgiveness
The IRS likes to tax things, and forgiven debt is no exception. On the one hand, public service loan forgiveness is not considered taxable income. On the other hand, any balance wiped out through an income-driven repayment plan can be counted as income and taxed.
How Long Does the Pause on Student Loan Repayments Last?
The latest extension of the pause lasts until 60 days after either the Department of Education activates the forgiveness program or the legal fight over it ends, or, 60 days after June 30, 2023.
Can I Still Apply for Student Loan Forgiveness?
Although the Biden administration and the Department of Education approved student loan debt relief in August 2022, program implementation was prevented by litigation over its legitimacy in November 2022. As a result, applications for student loan forgiveness are not being accepted at this time.
Which Loans Qualify for Forgiveness and Will I Owe Taxes?
Direct loans made by the federal government qualify for forgiveness. Loans made by private, non-governmental lenders do not qualify. Bear in mind that, while the federal government doesn't levy taxes on the amount of a student loan that's forgiven, certain states may do so.
The Bottom Line
The burden of student loans can be overwhelming, and student loan forgiveness isn’t easy to earn, no matter which route you pursue. It commonly relies on years of employment or the ever-shifting political winds that seek to change forgiveness programs.
All student loan forgiveness programs come with certain conditions, requirements, and limitations. Student loan forgiveness might be a welcomed possibility—offering some relief to student borrowers toward the end of their repayment period—but its future is uncertain. Students should be wary of incurring debt beyond their means based on the assumption that a good chunk of it will be forgiven.