How do people get rid of their student loan debt, and when is loan forgiveness an option? We don’t need another statistic to show how deeply in debt U.S. college graduates are.
Total and average debt figures don’t mean much, except that if the sums you owe keep you awake at night, you’re not alone. What matters is that a solution is found.
Which Loans Are Eligible for Student Loan Forgiveness?
Only federal government direct loans are eligible for forgiveness. Stafford loans, which were phased out in favour of direct loans in 2010, are also still available.
If you have other types of federal loans, you may be able to consolidate them into a single direct consolidation loan, giving you access to more income-driven repayment options.
Non-federal loans (those handled by private lenders and loan companies) are not eligible for forbearance.
Borrowers with federal student loans who attended for-profit colleges and sought loan forgiveness because their school defrauded them or violated specific laws faced a setback in 2020 when then-President Trump vetoed a bipartisan resolution that would have overturned new regulations that make access to loan forgiveness much more difficult.
The new, more stringent regulations took effect on July 1, 2020.
As of August 23, 2022, the Biden administration had approved $32 billion in student loan debt relief for over 1.6 million borrowers, a significant number of whom were victims of for-profit college fraud.
Because of the COVID-19 pandemic, the Biden administration announced measures to assist student loan borrowers. This includes debt cancellation of up to $20,000 for Pell Grant recipients with Department of Education loans and up to $10,000 for non-Pell Grant recipients. This is in addition to the student loan forbearance, which will expire on December 31, 2022.
Forgiveness of Income-Driven Repayment Plans
The standard repayment period for federal student loans is ten years. You can enroll in an income-driven repayment (IDR) program if a 10-year repayment period makes your monthly payments unaffordable.
Income-driven programs spread payments over 20 or 25 years. After that term, assuming you’ve made all of your qualifying payments, any remaining loan balance is forgiven.
Payments are determined by your household income and family size, and are typically limited to 10%, 15%, or 20% of your discretionary income, depending on the plan.
The four types of IDR plans offered by the US Department of Education are listed below, along with the repayment periods and monthly payments for each:
- Pay As You Earn Repayment (REPAYE) Plan Revised:
This plan has a repayment period of either 20 years (if all loans were received for undergraduate study) or 25 years (if any loans under the plan were received for graduate or professional study). Typically, monthly payments are 10% of your discretionary income.
- Pay As You Earn (PAYE) Repayment Plan:
This plan has a 20-year repayment period. Monthly payments are typically 10% of your discretionary income, but they cannot exceed the Standard Repayment Plan amount over a 10-year period.
- Plan for Income-Based Repayment (IBR):
If you did not have an outstanding balance when you received a direct loan or Federal Family Education Loan (FFEL) on or after July 1, 2014, the repayment period for this plan is 20 years, with monthly payments typically equal to 10% of your discretionary income.
If you had an outstanding balance when you received a direct loan or an FFEL on or after July 1, 2014, the repayment period for this plan is 25 years, with monthly payments typically equal to 15% of your discretionary income. Monthly payments in either case cannot exceed the 10-year Standard Repayment Plan amount.
- Plan for Income-Contingent Repayment (ICR):
This plan has a 25-year repayment period. Monthly payments are 20% of your discretionary income or the equivalent amount for a repayment plan with a fixed 12-year payment (adjusted based on your income), whichever is less.
An IDR plan may be a good option for people in low-paying jobs with significant student loan debt.
If you’re thinking about an IDR, keep in mind that eligibility varies by plan, with some types of federal loans ineligible for repayment under all but one plan.
Furthermore, you will be required to “recertify” your income and family size on an annual basis, even if neither has changed from one year to the next.
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