In the context of student loans, three terms are used to refer to the ending of a borrower’s obligation to repay their debt: discharge, cancellation, and forgiveness. While each term means all or a portion of a borrower’s debt will be reduced or eliminated, they have important distinctions:
Student loan discharge is typically used when a borrower is unable to repay the debt for reasons such as disability or bankruptcy; or the borrower is no longer responsible for the debt because of fraud.
Student loan cancellation is often used interchangeably with forgiveness and is typically based on a borrower’s job and/or income. More recently, cancellation was frequently used in reference to President Biden’s proposed federal student loan debt plan to distinguish it from existing federal student loan forgiveness programs.
Student loan forgiveness is typically used when a borrower is working in a particular occupation for a defined time period. Forgiveness is typically attached to federal student loans in particular and is part of federal programs such as Income-driven Repayment (IDR), Public Service Loan Forgiveness (PSLF), and Teacher Loan Forgiveness
With a focus on federal student loan forgiveness, including PSLF, let’s explore who qualifies to have their student loan debt reduced or eliminated in this way.
There are currently proposed changes to the Public Service Loan Forgiveness (PSLF) and Income-driven Repayment (IDR) programs that could change eligibility, requirements, and potentially the amount of money you could save. For more information, visit studentaid.gov or schedule a consultation with a GradFin student loan specialist.1
To understand if you’re eligible for federal student loan forgiveness programs, you will need to understand what types of federal student loans you have, if your employment situation qualifies, your household income, and what the requirements of the different forgiveness programs are.
Depending on what type of federal student loans and what type of forgiveness path you’re pursuing, you may need to consolidate your federal student loans.
Under President Biden’s proposed federal student loan debt relief plan for low- and middle-income borrowers, only federal student loans, including parent PLUS loans, issued prior to June 30, 2022 would have been eligible for cancellation of $10K to $20K. The proposed plan was struck down by the Supreme Court in June 2023. Learn more here and at whitehouse.gov/.
As for forgiveness through IDR plans, you can learn more about which federal student loan types are eligible for the four different IDR plans in our Guide to Federal Student Loan Repayment Programs.
In the case of PSLF, only non-defaulted loans received under the William D. Ford Federal Direct Loan (Direct Loan) Program are eligible for forgiveness through the PSLF program. Learn more about PSLF eligibility by visiting the Student Aid website here.
Under the Teacher Loan Forgiveness Program, Direct Loans or FFEL Program loans are eligible for forgiveness. Learn more here.
Your household income was an important factor in eligibility for Biden’s proposed student loan debt relief plan. Income is also a critical factor in the IDR program, which in turn impacts eligibility for PSLF. Some IDR plans factor in your spouse’s income into their calculations in addition to yours – learn more here.
Under Biden’s proposed one-time forgiveness plan, only people who earned less than $125,000 as an individual or $250,000 as part of a married couple in 2020 or 2021 will be eligible for forgiveness. The plan calls for up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education and up to $10,000 in debt cancellation to non-Pell Grant recipients.
Although SCOTUS struck down the Biden Administration’s proposed relief plan for federal borrowers, forgiveness programs such as Teacher Loan Forgiveness, IDR, and PSLF are not impacted by the SCOTUS ruling. You can still apply to these programs.
PSLF is a US government program that allows borrowers employed at qualifying nonprofits and government organizations to have their Federal Direct Loans forgiven after ten years of repayment under an Income-driven Repayment (IDR) plan. To be eligible for PSLF, you must:
If you’re a borrower with commercially managed FFEL, Perkins, or Health Education Assistance Loan (HEAL) Program loans, be sure to apply for a Direct Consolidation Loan by the end of 2023, to take advantage of this forgiveness opportunity. To learn more, schedule a free call with a GradFin specialist.
Public sector professionals — such as doctors, nurses, first responders, and teachers — employed by qualifying nonprofit organizations and government entities are eligible for PSLF. Learn more about jobs that qualify for PSLF here.
To be eligible for forgiveness through the 10-year PSLF program, you must make 120 qualifying payments while enrolled in one of the following IDR programs:
*Only new enrollments from borrowers of consolidated Parent PLUS loans are being accepted into the ICR plan. No change for current enrollees.
**New enrollments in PAYE are being accepted until further notice, but this plan will eventually be phased out. No changes for current enrollees.
Understanding the rules, preparing paperwork, and applying for PSLF can be difficult to navigate on your own. Recertifying your employment each year and making sure you meet all PSLF program requirements over the course of ten years can be daunting as well. Schedule a free 30-minute forgiveness consultation with one of our student loan specialists at GradFin who can help get your questions answered, make a plan, and help guide you on potential tax implications of a student loan forgiveness event.
To apply for student loan forgiveness through IDR, first review your eligibility for the different types of plans and get a sense of which plan could be right for you using Student Aid’s Loan Simulator tool. Do you meet all the requirements and have all the documentation you need? If you have parent PLUS loans, you must consolidate them to become eligible for IDR. If you’re unsure or have questions, you could schedule a free call with a GradFin student loan specialist for guidance.
To apply to the federal IDR program, you will need to sign in to your account on studentaid.gov. For a preview of the application questions, you can view a demo here. Before you start your application, make sure you have the right documentation on hand to help you complete the application efficiently and accurately.
When applying to IDR, you will typically need to have the following documentation readily available:
The application for IDR must be completed in a single session, but the good news is that most people complete the application in 10 minutes or less, according to the studentaid.gov. Generally, IDR application processing should take less than two weeks. However, it’s also not uncommon for applications sit under review for months.
If you think you could qualify for federal student loan forgiveness, contact your loan servicer and get an understanding of what types of federal student loans you have and whether or not you need to consolidate.
If you’re thinking of applying to IDR or PSLF, our GradFin team can help. A GradFin student loan specialist can help you track progress on your application and keep you up-to-date on the latest requirements for different forgiveness programs.
If you’re eligible for Biden’s proposed student loan debt relief plan, stay tuned for more clarity on the situation toward the second half of 2023.
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