What is Student Loan Forgiveness in the USA?

 Student Loan Forgiveness exempts students from the binding to repay some part of their entire federal loan debt. Being eased out in such a way seems an exciting prospect for the students. Although it sounds exciting, everyone does not become eligible.

There are different requirements according to the type of loan, but mostly the offer is valid for those who take up specific public service jobs. Repayment plans are also the part of student loan forgiveness, and it refers to the forgiveness of some part of the debt. 

Discharging Students Loan

In order for a federal education loan to be discharged, the overall circumstances must be beyond borrower’s control. Most of the loans may be discharged in the following cases;

• If the borrower becomes permanently disabled
• If the school is closed down during the time of study
• If the school has falsely declared the qualification of the loan
• If someone secures the loan through identity theft, it also includes securing the loan on behalf of someone else by using their identity. 
• If the school fails to refund the required loan to the lender
• If borrower dies 

Circumstances beyond borrowers control do not refer to being dropped out of the educational institution before graduation or failure to find a job after graduation. Nevertheless, there is a possibility that authorities may consider the forged tactic of schools that guarantee students a highly-paid job after the completion of graduation.

For instance, in June 2015, the U.S. Department of Education made a commitment about debt relief for the students from the bankrupt for-profit Corinthian chain of colleges. The department provides detailed information about the procedure of application on its website. 

Eligibility of Student Loan Forgiveness

Students can become eligible for “student loan forgiveness” by doing the job in public services or through making payment via an income-contingent payment plan for long-term. Conditions apply for both the cases and none of the routes is quick and easy. 

The Public Service Loan Forgiveness Program (PSLF)

The purpose of this program is to help individuals who do jobs in public services, either in the government department or non-profit organizations. You may be eligible for partial or entire forgiveness of loan through specific types of jobs such as volunteer work, medical practice, or military service.

In order to become eligible for debt forgiveness under the public service program, initially, you must make 120 qualifying payments, i.e. timely payment of the minimum due amount.

You are required to make these payments while you are doing a job for a qualified employer- mostly, a local, state, or federal government or the non-profit organization holding tax-exempt status. Effectively, you qualify once you complete ten years of job and ten years of payments every month. 

Preferable eligible positions are those of government, police, fire departments, nursing and social work. For earning eligibility, only the payments that were made after October 1, 2007 qualify. If you are not an employee of the public service department, still you may be able to have some part of your loan waived – however, it will take time.

Income-based repayment plans at the Federal level enable some debt forgiveness after the minimum period of 20 years. Terms and conditions are different according to the program. 

For FEEL or Perkins loan, you may pool these loans into a federal loan, which meets the criteria of eligibility for forgiveness. Only the payments that are made after consolidation will fall under the policy of 120-payment minimum. So, do this as soon as you can. 

Only the direct loans that the federal government makes (called William D. Ford Federal Direct Loan Program) hold eligibility for student loan forgiveness. Non-federal loans that loan companies or private lenders issue, do not count toward this program. If your loan is not William D. Ford Direct Loan, and you have made borrowings through the Federal Family Education Loan Program (FFEL) or Perkins Loan Program (no longer exists now), you can consolidate these debts into the Direct Consolidation Loan.

Now, the newly consolidated loan would qualify for public service loan forgiveness under the conditions as mentioned above. Bear in mind that only payments made on the consolidated loan will have consideration for the 120-payment minimum; payments made earlier according to the old loans would not count. 

The conditions for student loan forgiveness depend on the change and the overall political conditions. Irrespective of the changes on the horizon, Mark Kantrowitz (the publisher and the Vice President of research at Savingforcollege.com alert and warns borrowers about betting their financial future with the expectations of debt forgiveness, especially the type, which is connected to the public service.

10-years full-time service is a strict condition for loan forgiveness. So, borrowers! Keep in mind, and if you do not complete 10-year service, there will be no loan forgiveness for you. 

Disadvantages of Forgiveness/ Repayment Plan

Income-based repayment may also have a disadvantage: More interest will add to your loan because of the compensation spans over a longer period. Loan payments in accordance with IBR and PAYE may be negatively amortized, causing more problems for the borrower, says Kantrowitz.

Borrowers who plan to have a considerable increase in their income after a few years of repayment, they probably need to go for the plan such as extended repayment or graduated repayment. In which the monthly payment will be equivalent to the new interest that adds and the loan balance will not go up. 

Under the income-based repayment program, your loan payments will increase with your income/salary. Keep in mind, and payments change on an annual basis according to the income. When you earn more, your payment may also go up, says Reyna Gobel, writer of the Cliff Notes Graduation Debt: She advises that if you succeed in lowering down your monthly payment, do not consider spending too much with the newly available funds.

Currently, if you are burdening yourself with debt because you think these plans will help you in future: stop! You have no idea as to what will be the policy for graduates as the policies are subject to change.