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Student Loan Forgiveness 101

April 9, 2016
Updated November 1, 2019

Student loan forgiveness (also known as cancellation and discharge of student loans) is the act of releasing a borrower from their obligation to repay all (or a portion) of their federal student loan(s), including the principal and interest. It is only provided under certain circumstances, to those with federal loans, and to borrowers who meet certain eligibility requirements. While it may seem hard to qualify for student loan forgiveness (see how less than 1% of applicants were approved for Public Service Loan Forgiveness), it’s helpful to understand the circumstances that would qualify for student loan forgiveness so you can be sure you aren’t missing out. There are a variety of options available, all of which intend to reduce or eliminate student loan debt.

 

This introductory guide to student loan forgiveness aims to help readers familiarize themselves with the options and eligibility requirements surrounding federal student loan forgiveness. It includes student loan forgiveness categories, income-driven repayment plans, state, and city-sponsored forgiveness options, as well as explains what happens once a student loan forgiveness application is approved or denied.

 

Keep in mind that the bottomline is that unless your circumstances line up with these mentioned, you’ll have to pay your loans according to the promissory note you signed – even if you were a minor when you signed it, can’t find employment, or aren’t happy with your education.

 

Student Loan Forgiveness Categories

There are a variety of circumstances that may lead to federal student loan forgiveness. However, none are guaranteed and each circumstance may or may not apply to the borrower’s particular type of federal loan. Furthermore, certain categories of loan forgiveness mandate that applicants meet certain eligibility requirements, including items such as qualified monthly payments and qualifying employment. The following list highlights the different federal loan forgiveness categories, but borrowers should also review this chart, from the Federal Student Aid Office, to ensure their circumstance applies to their particular federal loan type (Direct Loans, FFEL Program Loans, and Perkins Loans):

  • Closed School Discharge

 

Borrowers who believe they may qualify for student loan forgiveness are encouraged to read more about the possibilities related to federal student loan forgiveness and cancellation. These borrowers should also contact their loan servicer (the company handling billing and services related to the student loan) to further discuss their options.

Finally, if a student loan forgiveness application is placed under review, borrowers should continue to make payments on their loan to prevent it from going into default or accumulating additional interest until all final decisions are made.

 

Income-Driven Repayment Plans & Student Loan Forgiveness

The Federal Government’s four income-driven student loan repayment plans forgive a student’s remaining loan balance after either 20 or 25 years. These payment plans work by creating a set, monthly payment amounts that are based on what is affordable for the borrower’s income and family size. After making qualified payments for the entirety of the repayment period, the loan’s remaining balance is forgiven. Applying for an income-driven repayment plan is free with the Federal Government, and per Federal Student Aid (an office of the Department of Education), “most federal student loans are eligible for at least one income-driven repayment plan.” The repayment plans — and a few of their details —include:

  • Income-Based Repayment (IBR Plan):

The IBR Plan requires that a borrower meets certain eligibility requirements. Depending on when the loan was issued, monthly payments are generally 10 percent or 15 percent of the borrower’s discretionary income, and the repayment period is either 20 or 25 years.

 

  • Income-Contingent Repayment (ICR Plan):

The ICR Plan is open to all borrowers with eligible federal loans. Payment amounts are the lesser of the two options: either 20 percent of the borrower’s discretionary income or what the borrower would pay on a repayment plan with a fixed payment over the course of 12 years (adjusted according to income). The repayment period is 25 years.

 

  • Pay As You Earn (PAYE Plan):

The PAYE Plan requires that a borrower meets certain eligibility requirements. Payments are generally 10 percent of the borrower’s discretionary income, but it is never more than the 10-year Standard Repayment Plan amount. The repayment period is 20 years.

 

  • Revised Pay As You Earn (REPAYE Plan):

The REPAYE Plan is open to all borrowers with eligible federal loans, and payments are generally 10 percent of the borrower’s discretionary income. The repayment period is 20 years for loans solely dedicated to undergraduate study and 25 years when the loans have been used for graduate or professional study.

 

Borrowers using an income-based repayment plan may also be eligible for Public Service Loan Forgiveness. Qualifying for this plan means borrowers with a remaining Direct Loan balance will have loans forgiven after 10 years of qualifying payments, rather than 20 years. Learn more about the program and its qualifications here.

 

State and City-Sponsored Loan Forgiveness Programs

Student loan forgiveness programs may also be offered by particular states and cities. These local-level loan forgiveness programs are often directed at particular professions (for example physicians, health care providers, and teachers) when the city or state faces an employment shortage in a critical profession. Loan forgiveness for those with careers in science, technology, engineering, mathematics, and law are also frequently offered. To find state and city-based loan forgiveness programs, try searching one of the following databases:

  • Physicians looking to find states offering loan repayment and forgiveness, as well as scholarship opportunities, will find the Association of American Medical College’s (AAMC) searchable database most useful.

 

Approval or Denial of Student Loan Forgiveness

Approved: Borrowers who are approved for student loan forgiveness are no longer obligated to make student loan payments unless only a certain amount is forgiven. Additional benefits may also include a refund of past payments, the removal of any negative credit records related to default payments, and a renewed eligibility to apply for federal student aid (as long as there are no other defaulted loans). However, there are cases in which the borrower may be responsible for refunding a portion of the loan to the U.S. Department of Education, so it is important to understand and verify every detail throughout the process.

 

Denied: Borrowers who are denied student loan forgiveness remain responsible for repaying the remaining balance of the loan. Your repayment plan will follow the terms of the promissory note that you have signed. It is unlikely that a final decision can be appealed (with the exception of false certification and forged signature discharges).

 

More Options

Borrowers who are ineligible for student loan forgiveness and income-driven repayment plans — as well as borrowers with private loans — will find that additional money-saving options still exist in the form of student loan refinancing and consolidation. No matter the situation, we recommend that borrowers talk to a student loan expert to find the plan and benefits that best suit their short and long-term financial goals. For questions about refinancing and consolidating student loans — both private and federal — contact the specialists at Education Loan Finance.*

 


 

*Subject to credit approval. Terms and conditions apply.

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2020-07-02
Should You Keep Paying Federal Student Loans During CARES Act Suspensions?

You probably already know that the CARES Act has suspended Federal student loan payments for the time being. Until September 30th, you aren’t required to make payments, and the interest rate of your loans is set to 0%. This is primarily to help those with student loans who are struggling during these uncertain times. If your student loans are in forbearance due to the CARES Act suspensions, you have several repayment options based on your financial goals.

 

Option 1: Take Advantage of That 0% Interest

Normally, when making extra payments on student loans, your money is first attributed to any collections charges or late fees, then to accrued interest, then to the principal itself.

 

With the current 0% interest rates, however, if your account doesn’t have any fees or charges, you’ll save some money at that step. The more you can reduce your principal balance, the more money you’ll save over time in interest.

 

For example, let’s say you have $25,000 in student loans at a 4% interest rate and you want to pay it off in the next 10 years. Over that period, you accrue $5,373.54 in interest. However, if you take advantage of the CARES Act 0% interest, you can change the course of your repayment.

 

For instance, if you continue to pay your student loans during this period, the payments will be attributed straight to principal and will save you about $300 in accrued interest over the course of your repayment.

 

Option 2: Wait Until September And Resume Payments

If the coronavirus has affected your finances, don’t worry about paying down your student loans too quickly. Instead, use this time to get your other debts under control. Focus on paying back higher interest rate debt, like credit card debt, which will impact your long-term financial health.

 

Option 3: Refinance and Take Advantage of Low Interest Rates

During this time, many student loan refinancing companies are offering low interest rates. If you’re locked into an unfavorable rate, this would be a great time to consider refinancing student loans to save on interest costs.

 

This is an especially great option for borrowers with private loans, as these types of loans aren’t currently receiving any type of federal forbearance benefit. For a personalized look at how refinancing could improve your financial health, check out the ELFI Student Loan Refinancing Calculator.*

 

So, should you keep paying federal student loans during the CARES Act suspensions? The answer depends on your unique goals. Whether you choose to pay your federal loans, take care of other expenses, or refinance your student loans, this is a great opportunity to eliminate some additional debt before the September 30 deadline. Happy saving!

 
 

*Subject to credit approval. Terms and conditions apply.

 

Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.

Coronavirus (COVID-19)
2020-06-26
Looking Back on How COVID-19 Has Impacted Student Loans

The COVID-19 pandemic has affected everyone’s life in one way or another. For many Americans, this included their student loans. Whether you are unable to make payments or benefiting from a lower interest rate, it can be confusing to know how all of the ways the pandemic may be affecting your situation.    By Caroline Farhat   The impact on student loans is different depending on whether you have federal or private student loans. If you do not know what type of loans you have, you can log in to your account on the StudentAid.gov site that will show you any federal loans you have borrowed. If you think you have any private loans, be sure to request your free credit report to see the information on them.  

COVID-19 Impact on Federal Student Loans

On March 27, 2020,
the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The CARES Act impacts most federal student loans, but not all. Perkins Loans and FFELP loans that are not owned by the U.S. Department of Education are not included in the benefits provided by the Act. Most federal student loans are covered. Here’s how the CARES Act affects all other federal student loans:   

Administrative Forbearance

The covered student loans were automatically placed on administrative forbearance from March 13, 2020, through September 30, 2020. This means no payments are required during that period and no action was required to receive this benefit. If you decide to make payments during this time the amount will go towards the principal of the loan after the interest accrued as of March 13 is paid. Any payments made after March 13 through September 30 can be requested for a refund.    

Interest Rate

The interest rate on the covered federal loans is temporarily set at 0% from March 13 through September 30. You do not have to do anything to receive the reduced interest rate. This reduced interest rate is beneficial because your loans will not be increasing during the paused period.    

Student Loan Forgiveness

The non-payments during the March 13 to September 30 timeframe count towards payments made for student loan forgiveness. This is especially beneficial if you are in the Public Service Loan Forgiveness (PSLF) program. As long as you are employed at a qualifying employer, you do not have to make any payments during the period and the months will still qualify towards your required number of payments. 
  • For example: if you have 48 payments remaining until you are eligible for loan forgiveness under the PSLF and you do not make any payments from March 13 to September 30, your required number of payments until forgiveness will be reduced to 42 payments.
 

Collection on Defaulted Loans

If you currently have federal defaulted student loans, the collection on those loans is paused from March 13 through September 30, 2020. You should not receive letters or phone calls regarding the collection of these debts. In addition, your tax refund, social security benefits and wages cannot be garnished during this time. However, keep in mind after this paused period, collections will resume on your defaulted loan.  

Rehabilitating Defaulted Loan

If you are in a rehabilitation agreement for your defaulted loan, the suspended payments will count toward your rehabilitation during the suspended payments period.  

Employer Educational Assistance Programs

The CARES Act allows employers to contribute up to $5,250 per year towards an employee’s student loans tax-free through December 31, 2020. This is a savings for the employee who can have extra money paid on their student loans with no taxes owed on the money. This provision of the Act allows employers to use student loan assistance as a benefit to offer to employees, while not having to pay payroll taxes on the money. Corporations looking to add this benefit for their employees can find out more information here.  

COVID-19 Impact on Private Student Loans

Private student loans are not covered by the CARES Act, however, you may still be eligible for some relief if you have been financially impacted by COVID-19.  

Lender Relief Measures

Many lenders are providing relief measures, such as forbearance, in which you will not be required to make payments for a certain period. Every lender is different so be sure to check with your provider if you need any assistance.  

State Relief

Some states’ attorney general offices have made agreements with private student loan lenders to provide relief to borrowers impacted by the pandemic. As of this writing, nine states plus Washington D.C. have made agreements with lenders. Some of the benefits in the agreements may include:
  • 90 days forbearance, which means no payments would be due 
  • Waiver of late fees 
  • No negative reporting to credit bureaus 
If you do not live in a state that is helping to provide relief, refinancing your student loans may be a great option for you. Refinancing can reduce your monthly payment to make it more affordable for you. Refinancing allows you to borrow a new loan to pay off your old student loan. The new loan can save you money by having a lower interest rate or obtaining a new loan with a longer term length to lower the payments, but extend the number of months you have to pay. Check out our Student Loan Refinance Calculator to see how much you may be able to save.*     During this unprecedented time, it’s helpful to have some relief from student loan payments if you are unable to make them. Explore all your options to see what works best for your financial situation.   
  *Subject to credit approval. Terms and conditions apply.   Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.
student loan news
2020-06-18
This Week in Student Loans: June 18, 2020

Please note: Education Loan Finance does not endorse or take positions on any political matters that are mentioned. Our weekly summary is for informational purposes only and is solely intended to bring relevant news to our readers.

  This week in student loans:
photo saying legislation

NAACP And 60 Other Groups Call On Congress To Cancel Student Debt

After the federal government has provided student loan relief to all federal student loan borrowers through the CARES Act, a coalition of over 60 organizations including the NAACP, American Federation of Teachers, and the National Consumer Law Center are now calling Congress to cancel student loan debt altogether in their next stimulus package.  

Source: Forbes

 

low rates on federal student loans

Student Loans: 3 Ways To Get A Lower Interest Rate

This Forbes article lays out the three ways to get a lower interest rate on your student loans, covering options such as refinancing, borrowing a new student loan, or even switching to a variable rate loan.  

Source: Forbes

 

question mark

How to Pay Off Student Loans When You’re Broke

With many individuals struggling to pay off their student loans due to lack or income or overwhelming expenses, this Fox Business article lays out options for paying down student debt when faced with difficult financial circumstances.  

Source: Fox Business

 

student debt in america

How Student Loans Became a $1.6 Trillion Problem

With the cost of college increasing almost 25% in the past decade and total student loan debt reaching $1.6 trillion, this CNBC video offers a historical view of the path the U.S. took to arrive at this state.  

Source: CNBC

    That wraps things up for this week! Follow us on FacebookInstagramTwitter, or LinkedIn for more news about student loans, refinancing, and achieving financial freedom.  
 

Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.