What You Should Know About Student Loan Forgiveness
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Student loans can leave people with an overwhelming amount of debt that can take decades to pay off. In this post, we examine what you should know about student loan forgiveness.
Student loan forgiveness wipes out the remaining balance on student loans, freeing college alumni from debt.
And millions of borrowers would benefit from more access to student loan forgiveness programs.
Forty-five million Americans have student loan debt (about one in seven), according to an analysis of January 2022 census data. According to LinkedIn News, the average student debt for baby boomers is $58,300, compared to $51,400 for Gen X borrowers, $46,400 for millennials and $27,900 for Gen Z.
Hence an increasing number of borrowers are demanding the federal government provide some form of student loan forgiveness. Whether the Biden administration provides relief, college students and grads should be aware of all student loan forgiveness programs.
“There are so many different types of student loan forgiveness programs out there, whether it is AmeriCorps, healthcare-related, public service-related,” said NYU School of Professional Studies Dean Angie Kamath. “It is really important for students to reverse engineer, think about career prospects, what it is that they want to do, what is important to them, and then make sure they at least have awareness on the different types of loan forgiveness programs.”
Learning about different loan types and their repayment plans is a key step before taking out student loans, said president & board chair at Charles Schwab Foundation Carrie Schwab-Pomerantz.
“Students should be as informed as possible before signing up for any long-term financial commitment,” Schwab-Pomerantz said. “This includes researching forgiveness and consolidation options for different loan servicers. It is also important to remember that federal student loans and private student loans often have very different forgiveness, consolidation, and repayment options. Federal student loans typically come with more options, so students should max out all federal loans and other financial aid before considering private student loans.
“However, students should also understand that not all debt is equal – some debt can work for you. For instance, student loans are typically lower-cost debt and tax-deductible. This means that student loans can be a financial tool allowing individuals to invest in their education and increase their earning potential. Because of the flexible repayment options, low interest rates, and tax-deductible interest that often come with student loans, it may not be advantageous to pay them off aggressively at the expense of working toward other financial goals.”
I chatted with Kamath and Schwab-Pomerantz to learn more about student loan forgiveness.
Who Qualifies for Student Loan Forgiveness
Several student loan forgiveness programs fall in the non-profit, government, education, and healthcare industries, but the chances of having your student loan debt removed don’t stop there.
“Everything from teachers to working in [public relations] in the public sector, military service, certainly AmeriCorps, and people doing national service qualify for different types of loan forgiveness,” Kamath said. “There has been a lot of innovation around income-driven and income-sharing [repayment plans] as well.”
The federal government also offers four income-driven repayment plans to lower monthly loan payments based on your income and family size.
“It could even be $0 if you are unemployed or earn less than 150% of the poverty threshold,” NerdWallet reported.
Student loan forgiveness programs can be broad, Kamath said. Finance employees can work for the government, and social media specialists can work in the non-profit sector, which provides them access to loan forgiveness programs.
“I think most folks can kind of find a way to think about loan forgiveness or ways to defray the cost of education if you are being planful about it,” Kamath said.
The Different Types of Student Loan Forgiveness Programs
Some of the major types of student loan forgiveness programs include the Public Service Loan Forgiveness Program, Teacher Loan Forgiveness Program, Perkins loan cancellation based on employment or volunteer service, Disability Discharge of Student Loans, and Borrower Defense, according to the Federal Student Aid Office of the U.S. Department of Education.
“Under the current rules, professionals working for government or nonprofit organizations are eligible for Public Service Loan Forgiveness,” Schwab-Pomerantz said. “This includes public school teachers, military personnel, social workers, public health providers, and law-enforcement individuals.
“To apply for Public Service Loan Forgiveness, you must meet certain requirements like working a minimum of 30 hours per week for a government or nonprofit employer, and you will have to change to an income-driven repayment plan.”
You can also qualify for student loan forgiveness programs if you have a Stafford Loan or a Perkins Loan and teach in a school that serves low-income or disabled students.
Or, where there is a teacher shortage, you might be eligible for a federal debt forgiveness program, Schwab-Pomerantz said in her ‘Ask Carrie’ column on Charles Schwab.
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“If you are a public school teacher or work in law enforcement, you may be entitled to a public service debt forgiveness program that discharges your remaining debt completely after 10 years of monthly payments and 10 years of public sector employment,” Schwab-Pomerantz said.
Serving in the military, the Peace Corps, AmeriCorps, or Vista, or if you perform certain social services jobs can create loan forgiveness, Schwab-Pomerantz said.
Meanwhile, the Borrower Defense program allows student loan forgiveness if you took loans to attend a school, the school did something, or failed to do something related to your loan, the U.S. Department of Education said.
“As many student loan borrowers wait to hear what will happen with forgiveness initiatives, it is important that they stay on top of their current loan,” Schwab-Pomerantz said. “Ensure you are making minimum payments on your loans to keep your credit score up and avoid any additional interest.
“It is also a good time to start acquainting yourself with what you owe and to whom. Several companies dropped out of the federal student loan business in the last few years – when many student loan repayments were paused in the pandemic - so you might be working with someone new.”
Review your student loan balances, interest rates, terms, minimum monthly payments, and repayment dates online, Schwab-Pomerantz said.
“I find it helpful to keep this information in a simple spreadsheet to make sure I don’t miss a payment or am paying more than I need to,” Schwab-Pomerantz said.
While major student loan forgiveness programs exist that borrowers may be familiar with, not all student loan forgiveness programs are easy to find, even via a general Google search.
“One of my former colleagues runs a foundation here in New York - the Petrie Foundation - and sent a note saying, ‘Please get the word out,’” Kamath said. “These programs have existed for decades, but no one has known about them.
“Some of the stats are that less than 10% of people who qualify [for student loan forgiveness] actually take advantage. It's not as simple as Googling. I wish it were. And I do think that the steps the government has taken to simplify [the process] are going to make it [easier to Google].”
Luckily for borrowers, a few organizations are working to increase the visibility of lesser-known student loan forgiveness programs.
“I think the Robinhood Foundation is going to do some pretty big campaigns to start to get the word out so it is not as complicated,” Kamath said.
Identify the Types of Loans You Have When Researching Student Loan Forgiveness Programs
Understand the types of loans you have when determining whether you qualify for student loan forgiveness programs.
Federal loans tend to have more benefits than private loans and are easier to forgive. If you refinance your student loans, you can only do that through private companies, and it will turn your federal loans into private loans, according to Forbes.
“You’ll lose access to IDR, forgiveness, generous deferment periods and other advantages,” if you do, Forbes reported.
Looking at which loans are forgivable and which are not will help, Kamath said.
“Many private lenders don't offer loan forgiveness,” Kamath said. “When it comes to these programs, the devil is in the details.
“The federal government [can help] simplify [the student loan forgiveness process] by talking about the important programs like public service loan forgiveness, AmeriCorps, etc., to really educate folks as [they are] looking at how you can get to and through college, [as well as] public versus private loans, knowing the public sector or the federal loan side is often much more forgivable than private, and putting it out there like that.”
Student loan forgiveness can be tricky, and borrowers need to educate themselves on the available options.
Identify whether your loans are federal or private, and do your research to find out which federal programs or grants are accessible. Also, remember that you can steer your career in a direction that makes qualifying for student loan forgiveness programs easier.
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What You Should Know About Student Loan Forgiveness