Federal student loans are major monthly payments for millions of Americans. But if you took out loans with federal student aid, there’s a chance that you might be able to have your outstanding debt forgiven.
Federal student loan borrowers who meet certain criteria can have their remaining balance waived. This includes undergraduate loans and may apply to you even if you don’t live below the federal poverty level.
Keep reading to learn who qualifies for forgiveness for their federal student loans and for more information about the loan forgiveness application process.
Understanding Student Loan Forgiveness
It’s worth first taking a moment to consider what student loan forgiveness actually entails. Put simply; this refers to student loans that are erased so that the borrower no longer has to make payments on them.
Student loan payments can be forgiven because of a loan discharge by the federal government, the completion of a public service loan forgiveness (PSLF) plan, and for other reasons. The common thread is that when a loan is forgiven, you no longer have to pay it back.
For the purposes of this article, we will be talking about federal student loans from the Department of Education rather than private student loans. You should also know that Pell Grant recipients typically don’t need to be paid back.
Differences Between Forgiveness, Cancellation, and Discharge
When it comes to student loan debt relief, the terminology used can get a bit confusing. For example, you may be wondering if there are differences between the terms forgiveness, cancellation, and discharge of student debt.
Effectively, there is no difference between these terms. If you have federal loans that you make a monthly payment on, your loan balances will be erased whether your debt is forgiven, canceled, or discharged.
However, forgiveness and canceled student loan debt are typically used when a borrower’s loan balance is erased because of their completion of a pre-requisite, such as finishing an income-driven repayment plan or making qualifying payments toward a public service loan forgiveness plan.
Discharge, on the other hand, is typically used for student debt in which the remaining balance goes away because of something outside your control. For example, the school you attended might go bankrupt, or you may have a permanent disability that precludes you from making loan payments.
Who Qualifies For Federal Student Loan Forgiveness?
Now that we’ve laid the landscape for student loan forgiveness let’s look at some of the different debt relief options for monthly payments on your federal student loan. Here are some of the different qualifications you may satisfy for debt relief through loan forgiveness.
President Biden’s Loan Forgiveness Plan
President Biden and the Department of Education have focused on providing debt relief for middle-income borrowers since the COVID-19 pandemic. That led to the delay of direct loan payments for all borrowers.
The president also wishes to forgive up to $20,000 in loans for all qualifying borrowers from middle-income families, but that plan is currently facing legal challenges. You may qualify for this targeted debt relief if your individual income is under $125,000 or your household income is under $250,000.
However, in order to forgive student loan balances, the Department of Education needs to win its case in the Supreme Court. To the borrower’s defense, the student loan pause will continue until either 60 days after the court case is resolved or June 30th, 2023, whichever comes first.
Public Service Loan Forgiveness (PSLF)
If you work in a public service role, then you can qualify for loan forgiveness after making 120 qualified monthly payments. You need to work in a public service role throughout these 10 years to have the federal government forgive loan balances. This includes your federal family education loan (FFEL) program loans.
One thing to note is that loan repayment to private lenders isn’t covered by this. If you have federal family education loans that are forgiven, you may have to pay state income tax on the balance that’s forgiven because the amount is treated as taxable income.
Income-Driven Repayment (IDR) Forgiveness
You can also have your balance forgiven if you use income-driven repayment plans. With these, you dedicate a percentage of your non-discretionary income to loan servicers for 20-25 years, depending on the plan.
After you’ve successfully made those payments, you’ll have your student loans forgiven via a loan discharge of your Perkins loans or direct consolidation loan. If you received Pell Grants and don’t have a high-paying job, there’s a good chance your direct loans will qualify for this.
Teacher Loan Forgiveness
Student loan borrowers who work in low-income schools can also qualify for $17,500 in loan forgiveness. Your loan servicer will forgive your direct loan balance at the end of the five-year period as long as you apply through the Department of Education and complete any other student loan repayment requirements noted in the program.
Closed School Discharge
As we touched on above, your public and private student loans can be forgiven if you go to a school that closes down. This is a common form of student loan relief for a borrower earning a minimal amount due to a school that didn’t effectively prepare them for the job market.
Total and Permanent Disability Discharge
Finally, there is also the possibility of forgiven student debt for any participant of the Direct Loan Program or student loan system who experiences total and permanent disability. This includes the borrower’s unpaid monthly interest.
How Much Student Loan Forgiveness Will They Get?
If you qualify for debt relief through student loan forgiveness by the Department of Education, the amount of loans that qualify for the student debt relief program can vary.
For example, all Pell Grants are forgiven instantly as long as you actually use them to go to school. But the teacher loan forgiveness plan only discharges $17,500 in student loans.
Similarly, the Biden administration’s plan will only forgive a maximum of $20,000 in student loans if effective after the student loan payment pause completes. But you could have your total balance forgiven if you make payments toward an income-driven payment plan based on discretionary income.
How To Apply For Student Loan Forgiveness?
You can apply for loan forgiveness on the federal student aid website. To do so, you will first need to select the type of debt relief that you are attempting to qualify for, such as PSLF or income-driven repayment.
Once you’ve chosen the type of relief you want, you’ll be taken to an application. This will ask you to input the information that the Department of Education needs to make a decision on your loan forgiveness request.
Once you do that, you’ll be ready to submit your application. And then, you will need to wait for the Department of Education to evaluate your application and ensure that you meet all of the necessary criteria.
Loan Payments During the Application Review Period
You need to continue making loan payments during the application review period. You may very well qualify for the loan forgiveness that you’re seeking. But until you get the notification that your application is approved, you should proceed as though it hasn’t been. That means continuing to make any loan payments that you were making before asking for forgiveness.
What If My Application Was Approved?
If you meet all of the relevant criteria, then your application for student loan forgiveness should be approved. When you receive the notification of approval, take a closer look to see when the approval becomes active, as it could be a future date.
Once the approval is active, then your student loan balance is forgiven and you no longer need to make payments. Just make sure that you keep the documentation of your approval so that you can prove you no longer are legally required to make payments if anyone asks you to.
It’s also important to note that the forgiven loan amount could be taxed as income. This means your tax bill may be higher in the year in which your loans are forgiven.
What If My Application Was Denied?
Application denials do happen. But they’re not necessarily the end of the road. You can submit an immediate appeal to the Department of Education if you think they made a mistake. Make sure to include new evidence to prove your point.
Or, maybe there was a valid reason for your denial. In that case, you can still plan for student loan forgiveness. You may just need to reapply at a later date to get it.
There are many different ways to qualify for the forgiveness of your student loans. Everyone can have their remaining loan balances forgiven if they make enough qualifying payments through an income-driven repayment plan.
You also have the option of working in a public service job for 10 years to have your debt wiped clean. And you’ll likely qualify for up to $20,000 in forgiveness if Biden’s student loan debt relief plan is approved by the court system.
That means no matter who you are or what your student loans look like, there’s a good chance that you will be able to have them forgiven one day. It may just take some people longer than others to reach this point.
Frequently Asked Questions (FAQs)
Who can qualify for student loan forgiveness?
You may qualify for student loan forgiveness by working in a public service job, making payments on an income-driven repayment plan, or working as a teacher in a low-income school. You may also qualify for up to $20,000 in student loan forgiveness if the Biden administration’s debt relief plan is successful.
How much loan forgiveness can I qualify for?
You can qualify to have up to the full balance of your student loans forgiven through the PSLF program or income-driven repayment plan.
What if my student loan forgiveness application is denied?
If your application is denied, you can always submit an appeal. You also have the option of trying to submit the application again once your circumstances have changed.
Do I have to make my monthly payment while waiting for my student loan forgiveness application?
Yes, you should continue making payments while waiting for your application to be processed. Failing to do so could threaten your financial wellness.
Do I have to pay back my Pell Grant?
No, all Pell Grants are automatically forgiven as long as you actually use the funds to pay for your education.