By receiving student loan forgiveness, students can avoid paying back their federal student loans in full or part. Students that need to pay for their college degree have taken out loans. Certain public service, educational, or military occupations qualify for loan forgiveness, which is offered for particular types of loans.
How the Forgiveness of Student Loans Operates
Anxieties over student loan debt have been heightened in recent weeks by reports of many for-profit institutions going bankrupt and the impending pandemic-caused economic disaster expected in 2020. Not just those in public service, on a repayment plan, or who have been cheated by their college, all debtors are now eligible for loan forgiveness under current federal law. If a loan is forgiven, it indicates that the borrower no longer has to pay it back, or at least a portion of it.
Types of Forgiveness for Student Loans
Public Service Loan Forgiveness (PSLF)
To qualify for the Public Service Loan Forgiveness Program (PSLF), a person must work in public service employment for either the government or a non-profit agency. Volunteer work, military service, or practicing medicine may be able to help you pay off some or all of your student loan debt.
Make at least 120 eligible payments to qualify for the public service program's debt forgiveness. You must make these contributions when working for an eligible employer, such as a government agency or non-profit organization with tax-exempt status.
A 2021 Revamp for PSLF
Payments made on the combined loan only counted toward the 120-payment requirement under standard PSLF criteria; payments made on the previous loans were not considered. The government's four income-driven repayment programs have to be selected by you as well. Regarding program limits, the U.S. Department of Education announced major loosenings on Oct. 6, 2021.
To meet the 120-payment threshold for PSLF, borrowers may earn credit for prior payments made on loans that otherwise would not qualify (such as those FFELs or Perkins Loans). No matter how late or incomplete they are, more payments will count.
Who Can Participate?
By Oct. 31, 2022, Direct Loan borrowers with FFEL, Perkins, or other indirect loans can get a limited waiver of interest if they consolidate into the Direct Loan program and complete a PSLF form. It is only applicable to student loans. The limited PSLF waiver does not apply to parents' PLUS loans.
To qualify for the PSLF, military personnel, government employees, and other public service organizations must meet certain criteria. Active-duty service members can credit deferments and forbearances toward PSLF under the waiver. The U.S. Department of Education has announced that military personnel who have halted payments while on active duty but have not received credit toward PSLF will now be able to do so.
Applying for Forgiveness
Both you and your employer must complete and submit the Public Service Loan Forgiveness & Temporary Expanded Certification & Application for the program before you may apply for PSLF for the first time or take advantage of the waived limits (PSLF form). To get the exemptions, you must first consolidate your FFEL and Perkins loans into a Direct Consolidation Loan before Oct. 31, 2022. There is no credit for payments made within this restricted period if you consolidate debt after that date. Your loan servicer will need to receive a PSLF form from you after the consolidation process is complete.
Plans for Repayment and Loan Forgiveness
If you don't work in public service, you may still be able to get some of your student loan debt forgiven, but it may take a lot longer to get there. This program is meant for graduates who may not be able to pay back their loans in the customary ten years, and it also allows for some debt forgiveness after a specific amount of time.
Borrower's Protection
Forgiveness of your student loan debt may be possible if your school deceived you or violated state laws in some other way. This type of forgiveness is known as "borrower defense to loan repayment." Borrower defense formerly meant that if you could prove that you had been cheated or significantly misled by the college you attended, you would have all your federal student loan debt canceled. For-profit, private colleges, and universities that participated in questionable activities were targeted by borrower defense.
The Verdict
Forgiveness plans aren't without flaws. Student loan forgiveness jobs sometimes pay much less than private-sector ones, so it's important to shop around before taking one of these jobs. Even if you don't qualify for debt forgiveness, you may be able to pay off your loans faster if you acquire a higher-paying job.
It's important to know that the Internal Revenue Service (IRS) may regard forgiven student loan debt as income, so you may be required to pay tax on it. For the time being, according to the American Rescue Plan Act of 2021, forgiven student loan debt will not be deemed taxable income for tax years 2021–2025.
