Understanding Student Loan Forgiveness, Cancellation, Discharge and Repayment Plans
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Student loan debt is higher than ever. Students are taking out federal and private loans to pay for college costs, which often take years to pay back. On average, they pay off their debt in 20 years. For some professional graduates, it takes more than 45 years to clear.
This kind of debt can weigh heavily on a person, especially if they aren’t making enough money to keep up with their monthly payments and rising interest. That’s why they may look into student loan forgiveness, cancellation, discharge and repayment plans.
If you are facing mounting student loan debt, you have options. By learning about them, you attempt to free yourself completely of this debt, or, at the very least, make it easier to pay.
Differences Between Forgiveness, Cancellation, Discharge and Repayment
Forgiveness, cancellation and discharge all mean that you don’t need to repay some or all of the loan. There are also such things as repayment plans. Find out what each one means so you can explore the different choices you may have.
- TermWhat This Term Means
- ForgivenessThis is used interchangeably with cancellation. Essentially, you won’t be required to make payments on your loans because of your job.
- CancellationThis is the same as forgiveness, where you will not have to make loan payments due to your job.
- DischargeYou are no longer required to make loan payments if you get a discharge due to other circumstances such as total or permanent disability.
- Repayment PlansThese are plans to repay your loans based on your income.
Current State of Student Loan Forgiveness
The U.S. government has been trying to address the student loan debt crisis — Americans owe $1.75 trillion in federal and private student loan debt. As of February 2022, the Biden Administration approved $415 million in a student loan forgiveness program for borrowers who were defrauded by their schools. These are usually for-profit schools that misrepresent themselves to students. This is called the Borrower Defense Program. Under it, 16,000 borrowers will receive student loan forgiveness.
Borrowers who qualify will be contacted, but if you believe you are eligible for this program, you can use the following resources.
- StudentAid.gov: On this official government website, you can find out more about the program. Also, you can see if you qualify.
- Borrower Defense Program Application: Do you think you are eligible? Then apply for the Borrower Defense Program on this site.
While you may be eligible for forgiveness, cancellation and/or discharge programs, you are still held responsible for paying back your loans. By finding a flexible option that works for you, you can reduce student loan repayment stress and focus solely on decreasing the debt.
List of Loan Forgiveness, Cancellation and Discharge Options
If you’re struggling to cover the costs of your loan payments, loan forgiveness, cancellation and discharge programs may offer you a good solution. Learn more about what these options include below to help you determine which one is best for you.
Yes, there’s a difference between student loan forgiveness and forbearance. While forgiveness means that you may not have to pay back some or all of your loan, forbearance allows you to lower or suspend your payments temporarily, usually for up to 12 months, while you are going through a financial hardship.
Federal
Different federal programs offer you student loan forgiveness or cancellation of your debt. You’ll need to look into the choices to see which ones you may qualify for. Please use the tables below and add in the programs in the appropriate table.
Forgiveness Programs
- Condition for Cancellation or ForgivenessEligibility Requirements and Additional NotesLoan Amount Discharged
Public service
Qualifying nonprofit and
government employeesAll, if you make 120 qualified
paymentsIncome
People with large balances when
compared to their incomeThe rest of your balance after you
make payments for 20-25 years.
You pay a percentage of your
monthly income.
Cancellation Programs
- Condition for Cancellation or ForgivenessEligibility Requirements and Additional NotesLoan Amount Discharged
Perkins Loan
Perkins student loan holders
All, if you work in public
service for five years
Discharge Programs
- Condition for Cancellation or ForgivenessEligibility Requirements and Additional NotesLoan Amount Discharged
Borrower Defense Program
Those who were defrauded by
schools, typically for-profit onesThe rest of your loan
Closed school
People who went to a school that
closed and didn’t receive a degreeAll, and you may get refunds
for payments made
Career-Based
You may be eligible for forgiveness, cancellation or discharge if you go into a certain profession. For example, if you become a medical professional, teacher or doctor, or you go into the military or public sector, you could become eligible. This is to encourage people to go into these fields.
Programs for Teachers
- Condition for Cancellation or ForgivenessEligibility Requirements and Additional NotesLoan Amount Discharged
Teacher loan forgiveness
- Working in low-income elementary
or secondary schools for five
years- Only for loans taken out after 1998
Up to $17,500 in federal direct
or Stafford loans- Working in low-income elementary
State-sponsored repayment
assistanceLicensed teachers
Depends on the state; check with
your state’s department of higher
educationPerkins loan
Work as a teacher, full-time, in a
public school or teach qualifying
subjects such as math, foreign
language, special education, or science100% of the loan
Programs for Medical and Health Professionals
- Condition for Cancellation or ForgivenessEligibility Requirements and Additional NotesLoan Amount Discharged
State-sponsored repayment
assistanceNurses and doctors
Depends on your state program;
check on the department of
higher education websitePublic Service Loan Forgiveness
programMedical professionals with
federal direct loansMake 10 years’ worth, or 120,
on-time paymentsNURSE Corps Loan Repayment
ProgramNurses
The program pays up to 85% of
qualified nurses’ unpaid student
loan debt.
Programs for Military Members
- Condition for Cancellation or ForgivenessEligibility Requirements and Additional NotesLoan Amount Discharged
Military student loan forgiveness
Members of the military
with loansDepends on the branch of
the military
Programs for the Public Sector
- Condition for Cancellation or ForgivenessEligibility Requirements and Additional NotesLoan Amount Discharged
Public Service Loan Forgiveness
Qualifying nonprofit and
government employeesAll, if you make 120 qualified
payments
Programs for Other Careers
- Condition for Cancellation or ForgivenessEligibility Requirements and Additional NotesLoan Amount Discharged
State-sponsored repayment
assistanceLicensed lawyers
Depends on your state
Federal student loan repayment
assistanceFederal employees who work
at an agency for at least
three years$10,000 per year per employee
for federal loansVolunteer organization forgiveness
AmeriCorps, Peace Corps and
other volunteer organization
employeesDepends on the terms of service
Loan repayment assistance
programsThose working as dentists
Depends on the state
U.S. Department of Agriculture
assistance programsVets who work in underserved
areas$25,000 per year for three years
in student loan repayment help
Others
You could also get your loan discharged, forgiven or canceled if you experience disability or bankruptcy or you pass away — then your family wouldn’t have to have to pay back your loan. It all depends on whether or not your disability prevents you from working or you qualify for discharge due to hardship under your bankruptcy filing.
Death
If you pass away with student loan death, your family can take the appropriate steps to get it discharged so they don’t have that extra burden on them.
Available Programs Due to Death
- Condition for Cancellation or ForgivenessEligibility Requirements and Additional NotesLoan Amount Discharged
Death
You must provide proof of death
The rest of your loan, once a
death certificate is sent to
the loan servicer
Disabilities
If you have a disability and you are unable to work, then you could potentially qualify for a program for individuals with disabilities.
Available Programs If You Are An Individual With Disabilities
- Condition for Cancellation or ForgivenessEligibility Requirements and Additional NotesLoan Amount Discharged
Veterans’ permanent and total
disabilityThis is for veterans who got
injured and are now facing
permanent and total disabilityAll of the loan
Permanent and total disability
This is for people who are
permanently and totally
disabled and can’t work
anymoreThe rest of your loan
Bankruptcy
There is a myth that you cannot get student loan debt discharged. You can, but it certainly is going to be harder than trying to get other types of debt discharged. Filing for Chapter 7 or Chapter 13 is not enough; you will also have to file an adversary proceeding.
Available Programs Due to Bankruptcy
- Condition for Cancellation or ForgivenessEligibility Requirements and Additional NotesLoan Amount Discharged
Undue hardship on you
Federal and private loans
Depends on your situation
How Do You Apply for Forgiveness?
You can apply for forgiveness through StudentAid.gov. It depends on the program you are applying for. Navigate to that official government website to find the specific application you need. You will need to prove how you qualify. There is no average timeframe for when you will hear a reply.
You should continue making payments on your student loans during the application process, just in case you don’t get approved. You don’t want to accidentally default on your loans.
Next Steps If You’re Approved
If you get approved for student loan forgiveness, there are a few different things that will occur.
Notification of approval
You will be notified about which program you have qualified for under student loan forgiveness, cancellation or discharge. You’ll find out if you qualified for full or partial forgiveness. If you were approved for the former, when you log into your loan account, your debt will be down to $0. If you were approved for the latter, you’ll determine how much you still need to pay back and the terms of your repayment.
Refunding of payments
In some cases, you will receive a refund for payments you already made. For example, if you were approved for the Public Service Loan Forgiveness and you made more than 120 qualifying payments, those would be counted as overpayments and you’d get a refund.
Credit history change
If you had negative marks on your credit report due to your student loans, these could go away, depending on the type of program you qualified for. This means that your credit report could improve, which will make it easier for you to get approved for future loans. If your cancellation erases your default, then you could once again become eligible for federal student loan aid.
You could get taxed.
Right now, under the Biden Administration, all student loan forgiveness will stay tax-free until the end of 2025. But if this policy is not renewed, then income repayment forgiveness is going to be taxed as income. If you receive notification that your student loans are forgiven, you’ll get a cancellation of debt form (1099-C) in the mail to file when doing your taxes.
Next Steps If You’re Denied
There is the possibility that you will be denied for student loan forgiveness. Here are some steps you should take if that occurs.
Review your application
You can make sure that you properly filled out your application by contacting a representative in the U.S. Department of Education's office of Federal Student Aid to ensure it details all the necessary information.
Try to appeal the denial
In some instances, you may be able to appeal the denial and get your application reexamined. For example, if you are applying for the Total and Permanent Disability (TPD) discharge program, you could have the chance to appeal within one year of your denial date. If your condition has worsened, you may be able to reapply and try again.
Look into other programs
There is the possibility that you could qualify for another program. Go on StudentAid.gov to see if there are alternative programs you might be able to apply to based on your career, disability, or bankruptcy status, or your income.
What Happens If You Don’t Qualify: Repayment and Other Alternatives
If you don’t qualify for forgiveness, cancellation or discharge, it can be disheartening. But there are other options you can go after depending on your specific situation. You don’t need to give up at this point. It may take some time and creative thinking, but there are alternative solutions.
Repayment Plans
Available Repayment Plans and Options
- Condition for Repayment PlanEligibility Requirements and Additional NotesLoan Amount Discharged
Standard Repayment Plan, with
a set timeframeAll borrowers of federal student
loansDepends; payments are on a
fixed amount and your loan
will be paid off within 10 years,
or 10 to 30 years for
consolidation loansGraduated Repayment Plan,
with a set timeframeAll borrowers of federal student
loansDepends; payments are on a
fixed amount and your loan
will be paid off within 10 years,
or 10 to 30 years for
consolidation loansExtended Repayment Plan,
with a set timeframeDirect loan borrower
More than $30,000 in outstanding
direct loans and the loan will
be paid off within 25 yearsRevised Pay As You
Earn Repayment Plan (REPAYE),
with a set timeframeDirect loan borrower with eligible
loan typeAny outstanding balance on
your loan is going to be
forgiven if you haven't repaid
your loan in full after
20 years for undergrad, or
25 years for graduate or
professional studyPay As You Earn Repayment
Plan (PAYE)New borrower on or after
10/1/2007, and must have
received a disbursement of
a Direct Loan on or after
10/1/2011Your monthly payments will
be 10% of discretionary income
Other Alternatives
If you are not a candidate for forgiveness, cancellation, discharge or repayment, then there are other roads you can go down. They include debt strategy plans, refinancing, budgeting and more. With a plan of action in place, you can pay off your student loan debt sooner and hopefully relieve yourself of this burden once and for all. Then, you can start to save for your future and fulfill your financial goals.
Use the debt avalanche or debt snowball method
With these options, you can pay off your student loan debt. With the debt avalanche method, you make minimum payments on all your debt and then pay off your debt with the highest interest first. With the debt snowball method, you pay off your smallest debts first and move onto the larger debts. While the former works out better mathematically, the latter works out better from a psychological standpoint. Why? You may be encouraged to keep going by accomplishing smaller, more attainable goals.
Try budgeting
By budgeting, you will be able to see where you’re spending money and where you could cut back on your expenses. With the 70/20/10 rule, 70% of your money will go towards your necessities and everyday spending, 20% will go towards savings, and 10% will go towards your debt and donations. However, this approach doesn’t work for everyone, so use a plan you’ll actually follow.
Refinance your loans
If your interest is way too high on your student loans, then you could always try to refinance them to lower the interest rates. You will have a higher chance of being able to refinance if you have improved your credit score overtime. You’re showing your student loan servicer that you are capable of paying back your debts, so they will be more likely to give you an attractive interest rate.
Negotiate with your student loan provider
If you have private student loans, you could call up your student loan lender and agree to pay a lump-sum settlement. This will only work if your loans are in default already, since your lender will be desperate to get their money back. It isn’t easy to negotiate a lump-sum settlement, but it may be possible in your situation.
Use extra money to pay back loans
Whenever you receive birthday money, a tax refund, a bonus from your job, or other extra money, you can put it towards your student loans. The faster you pay off the loan, the better, because you can avoid paying tons of interest on your loans. The longer you wait, the harder it will become to pay them off.
Expert Insight on Student Loan Forgiveness
MoneyGeek spoke with industry leaders and financial experts to provide expert insight on paying back student loans. They include the following.
- What are some good reasons for seeking out student loan forgiveness?
- What other steps do you recommend taking if you’re rejected from a student loan forgiveness program?
Supervising Attorney at The Bankruptcy Law Center
Founder of Scholarships360.org
Financial Advisor and Founder of HelpMeBuildCredit.com
Resources for Student Loan Forgiveness
There are many resources available to help when it comes to student loan forgiveness. Here are some places to start.
- Aid for Military Families: Find out more information on student aid help for military families if you are serving your country.
- Experian: Check out your credit report and score and see how your student loan debt is playing a part in your score.
- Household Budget Worksheet: Here is a budgeting sheet that will help you track and manage your monthly expenses.
- Legislative Tracker: Loans & Repayment: Find out about legislation that is handling the student loan crisis in the U.S.
- Student Loan Borrower Assistance — Bankruptcy: Discover if bankruptcy is the best option for you by navigating to this website.
- tudent Loan Forgiveness: You can learn all about student loan forgiveness and apply for a program on the federal government’s official website.
- Student Loan Forgiveness by State: Learn about your state’s specific programs to help people struggling with student loan debt.
- Student Loan Repayment: On this official government website, you can discover more information about repaying your student loans.
- U.S. Department of Education: Navigate to this official government website whether you are looking for a loan or you already have one.
About the Author
sources
- Education Data Initiative. "Average Time to Repay Student Loans." Accessed March 8, 2022.
- Education Data Initiative. "Student Loan Debt Crisis." Accessed March 8, 2022.
- Education Data Initiative. "Student Loan Debt Statistics." Accessed March 8, 2022.
- Forbes. "Biden Administration Approves $415 Million In New Student Loan Forgiveness Under Troubled Program: Key Details." Accessed March 8, 2022.
- StudentAid.gov. "Student Loan Forbearance." Accessed March 8, 2022.
- StudentAid.gov. "What will happen if my Public Service Loan Forgiveness (PSLF) application is approved?." Accessed March 8, 2022.
- Forbes.com. "If You Are Denied Student Loan Forgiveness, Do This." Accessed March 8, 2022.
- Forbes.com. "How To Negotiate Student Loan Settlement." Accessed March 8, 2022.