Student Loans Archives | Page 118 of 139

Sep

2021

Will There Ever Be a Student Loan Bailout?

By Ashley Kilroy | Fresh Out of School, Student Loans, student_loan | No Comments

It’s been more than a decade since the Great Recession. Remember how it brought multibillion-dollar financial corporations to their knees and nearly chased the big American automakers right out of Detroit?

Instead, both industries got a bailout, to the tune of $634 billion, according to ProPublica’s Bailout Tracker.

So if the giants of capitalism got a pass, will the students paying loans to get a bailout as well? Will there be a student debt cancellation plan for you and your former classmates?

A Rising Tide of Student Loan Debt

When you earned your degree, you also most likely earned your way into a not-so-exclusive club. Forty-five million people owe $1.73 trillion in student loans in America. For comparison, that’s $740 billion higher than the outstanding credit card debt in the country.

Student loan borrowers owed about $845 billion in late 2010. This means that in the past decade, student debt has grown by over 100%.

How Many Would Benefit From a Bailout?

Forgiving just $10,000 per person would wipe away the federal student loan debt of 15.3 million borrowers, Insider reported.

Proponents of student loan cancellation say a bailout would:

• Minimize the wealth gap

• Inspire the creation of small businesses

• Encourage homeownership

• Help people feel more confident starting families

Here are two more things backers argue that student loan forgiveness would do.

Spark an Economic Upswing

Bharat Ramamurti, a member of the COVID-19 Congressional Oversight Commission, tweeted what he sees as benefits of student loan forgiveness: “Broad student loan debt cancellation via executive order is good economics and politics.”

He added, “One study has found that canceling all debt would have a big stimulative effect. Of course, the impact would be less if less debt were canceled, but debt cancellation is one of the relatively few ways to stimulate the economy without Congress.”

Benefit All Federal Student Loan Borrowers

Upper-income households owe almost 60% of the outstanding education debt and make almost three-quarters of the payments, the Brookings Institution noted. Lowell Ricketts, a lead analyst for the Center for Household Financial Stability at the St. Louis Fed, agreed that loan forgiveness would disproportionately benefit affluent graduates .

But he pointed out that forgiving $10,000 of student debt would help many low-balance borrowers as well and resolve the problem of overdue payments that 19% of that group has.

The Price of Student Loan Debt Cancellation

While it might sound like a good idea in the face of high debt balances and delayed dreams, one reason it might not come to fruition is the price tag.

Erasure of $10,000 for all 43 million borrowers would cost $377 billion . Canceling $50,000 for all 43 million would cost over $1 trillion, according to The Conversation, which publishes pieces by academics well-versed in these areas.

Additionally, the optics of a student loan cancellation aren’t necessarily good. For example, law and dental school grads may have high debt balances but also might start lucrative careers immediately.

The issue of wiping out student loan debt may have another fairness factor. Former students who successfully paid off their loans may not appreciate seeing millions of current borrowers let off the hook.

And while you can default on a mortgage or get rid of most credit card debt by filing for bankruptcy, most student loans are owned by the federal government, and are extremely difficult to get discharged except for all but the most extreme circumstances.

Student Loan Cancellation FAQ

Q: Did the Stimulus Bill Forgive Student Loans?

A: No. The $1.9 trillion coronavirus relief bill passed in March 2021 doesn’t forgive student loans, but the legislation does mention them: Any federal or private student loan balance that’s forgiven will be tax-free through 2025.

Before the bill, participants of the Public Service Loan Forgiveness (PSLF) Program and income-driven repayment plans were required to pay taxes on any remaining loan balance that was forgiven.

With this change, borrowers who receive any loan forgiveness before Jan. 1, 2026, won’t have to pay taxes on the forgiven loan amount.

It’s unclear if private student loan borrowers will see any gain. Since the only options for repayment aid are refinancing and deferment or forbearance (if offered by the lender), they may not benefit from this bill. However, there has been some buzz about the Biden administration helping private student loan borrowers more.

Q: Are Student Loans Being Forgiven?

A: President Joe Biden had vocalized his support of $10,000 in student loan forgiveness but has not acted on it. The future of student loan forgiveness is still up in the air, as of this writing.

Q: Will They Take Away Stimulus Money for Student Loan Borrowers?

A: Collection agencies can seize stimulus payments for defaulted student loans in some cases.

Paying Down Your Student Loans

Even without a student loan bailout plan, options exist for dealing with your debt.

Federal and Other Programs

If you work in a qualifying public service field or as a teacher and you have federal student loans, you may be able to qualify for the Public Service Loan Forgiveness (PSLF) Program, which is supposed to forgive any remaining loan balance after 120 qualifying monthly payments. Unfortunately, the pool of people qualifying for loan forgiveness has been small.

Specific state and federal loan forgiveness options exist for health care professionals, veterinarians, lawyers, and teachers who work in underserved areas of the country.

In addition to the forgiveness options, qualified federal student loan borrowers may be able to take advantage of delayed payments .

Another way some borrowers seek to ease student loan debt is through income-driven repayment plans. The amount you pay is based on your family size and income, usually 10% of your discretionary income. It’s intended to make the monthly payments more affordable by stretching out the repayment term, which usually results in more interest accumulating over the now-longer life of the loan.

Refinancing

If you refinance your student loans with a private lender, you may qualify for a lower interest rate, which could shave off a significant sum over the life of your loans.

Some lenders refinance both private and federal student loans.

If you decide to refinance, you’ll typically have a choice between a fixed or variable rate, both of which carry their own risks and rewards. A fixed-rate stays the same for the life of the loan, so you always know what your monthly payment will be.

Variable-rate loans can fluctuate as the economy roars or slumps. They’re usually tied to a well-known index, so your payment amount may fluctuate over time. The potential benefit, however, is that initially, the variable rate is sometimes lower than the fixed rate.

You may also have term options if you refinance your student loans. You can shorten your loan term, which can help get you out of debt faster or extend your term, which could ideally lower your monthly payment but, again, means more interest accrues over the life of your loan.

Just know that if you’re refinancing your federal loans into private loans, you’ll be giving up federal benefits and protections such as federal deferral, forgiveness options, and income-driven repayment plans.

Recommended: Student Loan Refinancing Calculator

The Takeaway

Question marks swirl around student debt cancellation. Amid all the noise about the topic, it may be a good idea to take measures of your student loan rates and terms and plot a smart course.

Given up on the idea of a student loan bailout? Check your rate on refinancing your student loans with SoFi.

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.

SLR18178

Aug

2021

Closed School Loan Discharge Eligibility

By Rebecca Lake | Debt Payoff, Going to College, Student Loans, student_loan | Comments Off

The Department of Education allows federal student loan borrowers to seek a student loan discharge in certain circumstances. One such scenario involves a discharge related to permanent school cancellation.

If your college or university closes while you’re enrolled you may be wondering if you still have to repay loans you took out to fund your education. Closed school loan discharge can relieve you of the financial responsibility of repaying federal student loans.

There are certain eligibility requirements you need to meet to qualify for a closed school discharge. Understanding the guidelines, along with other options for student loan discharge, can help with managing your student debt.

What Is School Cancellation Loan Discharge?

The Department of Education can discharge up to 100% of federal student loans through the closed school discharge program.

The types of loans eligible for school closure discharge include:

• Federal Direct Loan Program loans (including Subsidized and Unsubsidized loans, consolidation loans, Parent PLUS loans and graduate PLUS loans)

• Federal Family Education Loan Program (FFEL) loans

• Federal Perkins loans

School cancellation discharge of eligible loans is not the same as loan forgiveness. Federal loan forgiveness programs, including the Public Service Loan Forgiveness program (PSLF) and Teacher Loan Forgiveness, have service and repayment requirements. With PSLF, you’re required to work in a public service job and make 120 qualifying payments toward your loans. Teacher Loan Forgiveness requires you to teach in a qualifying school for five consecutive years to be eligible for loan forgiveness.

A closed school loan discharge, on the other hand, imposes no requirements with regard to any minimum number of payments you need to make toward your loans or work service commitments. If you qualify, your obligation to make payments to your loans disappears.

Recommended: Types of Federal Student Loans

Who’s Eligible for Closed School Loan Discharge?

Borrowers may qualify for a school cancellation discharged if their school closed and they meet any of these conditions:

• They were enrolled at the time of the closure

• They were on an approved leave of absence when the closure occurred

• The closure occurred within 120 days of their withdrawal from the school and their loans were first disbursed before July 1, 2020

• The closure occurred within 180 days of their withdrawal from the school and the loans were first disbursed after July 1, 2020

Borrowers may not qualify for any discharge of student loans related to a school closure if:

• The student’s withdrawal happened outside the 120-day or 180-day windows allowed, based on the date of their first loan disbursement

• They are continuing education at another school

• They completed all coursework toward their degree before the school closed, even if they haven’t formally received a certificate or diploma

If any one of those things happens to be true then it’s possible a borrower won’t qualify for a closed school loan discharge.

How Does A Closed School Discharge Work?

If the school closes while a student is enrolled, they can apply for a federal student loan discharge. In general, students who meet the eligibility criteria will automatically receive an application from the Department of Education. The application is also available on their website.

Automatic Closed School Loan Discharge

School closure discharge is automatic if the school closed between November 1, 2013 and July 1, 2020 and the borrower hasn’t enrolled in another school within three years of the date of the closure. The Department of Education handles the closure for the borrower, there’s no need to complete the application. However, borrowers who would prefer to fill out the application, are able to do so.

Once your loans are discharged, the borrower is no longer responsible for paying anything toward them. But while an application for closed school discharge is under review it is important to continue making payments toward the loans as usual if they’re already in repayment. This can help avoid late payments.

Any discharged loans are removed from a borrower’s credit reports once the discharge is complete. That includes your entire payment history as well as negative items such as late payments.

Other Options for Discharging Student Loans

If you aren’t eligible to have your loans discharged because of school cancellation, there are some other scenarios that may allow it.

Disability Discharge

For example, you could apply for a discharge of your loans if you become totally and permanently disabled. The disability discharge option is available to eligible borrowers who owe:

• Federal Direct loans

• FFEL program loans

• Federal Perkins loans

It’s also open to TEACH Grant program recipients. In order to be eligible for a student loan disability discharge, you must be able to provide proof of your disability through a physician, the Social Security Administration, or the Department of Veterans Affairs. You’ll need to complete a separate application for this type of discharge and once approved, you’re subject to a three-year monitoring period to certify that you lack sufficient income to pay your loans.

Discharge in Death

Student loans can also be discharged due to the death of the borrower. That includes loans taken out by a student as well as Parent PLUS loans. In the case of Parent PLUS loans, discharge is an option if the parent who took out the loans passes away. To qualify for a death discharge of student loans, proof of death (i.e. a death certificate) must be submitted to the Department of Education.

In Rare Cases: Declaring Bankruptcy

Though it is rare, bankruptcy may be another option for discharging federal student loans, though it can be difficult to achieve. In order to have student loans discharged through bankruptcy, the borrower must be able to prove through an adversary proceeding that having to repay their loans would cause a sustained undue financial hardship for both themselves and their family.

Filing a bankruptcy case could result in all of the loans being discharged, some of them being discharged or none of them being discharged. Declaring bankruptcy adversely affects a person’s credit score and is generally a last resort. Always consult with a qualified and trusted financial advisor, accountant, or attorney before considering bankruptcy.

Other Options for Managing Student Loans

Federal student loan borrowers who are ineligible for other forms of discharge or student loan forgiveness may want to consider alternative options such as income-driven repayment options or student loan refinancing instead.

Income-driven repayment plans are offered to borrowers with federal student loans and consider a borrower’s discretionary income when determining their loan terms and payments. This can help make monthly payments more manageable but may make borrowing the loan more expensive over the life of the loan by extending the loan term.

Student loan refinancing may allow qualifying borrowers to secure a more competitive interest rate or loan terms. Though, keep in mind, refinancing any federal student loans will eliminate them from federal plans and protections, including income-driven repayment plans and closed school loan discharge.

Does School Closure Discharge Apply to Private Student Loans?

Federal closed school discharge applies to federal student loans only. Borrowers with private student loans wouldn’t be able to apply for a discharge through the Department of Education should their school close.

It may be possible to contact your private student loan servicer to see if any type of discharge option is available. Your lender may be able to offer a solution for handling private student loans if your school closed while you were enrolled and you have no plans to re-enroll elsewhere.

The Takeaway

Closed school loan discharge can help erase federal student loan debt, in the event a qualifying borrower’s school has closed. But if your school remains open or you have private student loans, you may need to consider other possibilities for keeping up with your payments.

Refinancing student loans could help borrowers secure a lower interest rate. Know that refinancing a federal student loan into a private loan eliminates it from federal student loan borrower protections, like income-driven repayment plans, deferment, and loan forgiveness options. So it may not be the best option for everyone.

If you’re considering student loan refinancing, take the time to look around for the best loan rates and repayment terms for you. SoFi, for example, offers competitive student loan refinancing rates with no hidden fees. Weighing student loan refinancing alongside other options can help make your loans more manageable.

Learn more about student loan refinancing with SoFi.

Photo credit: iStock/jacoblund

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOSL20057

Jul

2021

Consequences for Late Student Loan Payments

By Austin Kilham | Debt Payoff, Student Loans, student_loan | Comments Off

If you fail to make a student loan payment by its due date, your loan becomes delinquent, and there are all sorts of consequences that can result, from late fees to having your loan sent to collections. These consequences will typically depend on how long your loan is delinquent and whether you have a federal student loan or a private loan.

If you miss a student loan payment, take action immediately so you can work to avoid these consequences.

Federal Student Loan Late Payment Penalties

If you fall behind on federal student loan payments, you can expect the following consequences:

Late Fees

Your loan becomes a delinquent payment the day after you miss a payment. During the first 30 days of your delinquency, your loan servicer may charge you a late fee penalty. Your loan servicer will determine when to charge you a penalty and how much to charge.

Damaged Credit

If your loan is delinquent for 90 days or more, your servicer will report the late payments to the three major national credit bureaus—Experian, TransUnion, and Equifax—which keep track of consumer credit scores.

A delinquent loan can potentially damage your credit score. A lower credit rating can make it more difficult to open a credit card, take out loans to buy a house or a car, and limit your ability to obtain other types of consumer credit.

A low credit rating means that lenders likely see you as a greater risk. As a result, borrowers with a less than stellar credit score may qualify for a high-interest rate or be subject to less favorable terms for lines of credit or loans than a borrower with a more competitive credit score.

Credit scores can impact other areas of life too. For example, someone with a low credit score may have trouble signing up for homeowner’s insurance options and utilities or even getting approved to rent an apartment.

Default

If your loan is delinquent long enough, it can go into default. The timeline for this varies depending on the type of loan you have.

After 270 days of delinquency, loans made under the William D. Ford Federal Direct Loan Program or the Federal Family Education Loan (FFEL) Program go into default.

For loans made in the Federal Perkins Loan Program, a default may be declared more quickly such as soon as a payment is late.

Borrowers with a Perkins Loan, which stopped being made by the federal government in 2017, can contact the school that made the loan or the school’s loan servicer to learn more about repayment requirements.

Once a federal loan goes into default, it can trigger the following consequences, among others:

•   The entire loan balance becomes due immediately, including any interest that you owe. This is a process known as acceleration.
•   Deferment or student loan forbearance, which allow borrowers to temporarily suspend loan payments, are no longer options. Borrowers may also lose the ability to choose a repayment plan.
•   You lose eligibility for additional federal student aid, so you won’t be able to take out federal student loans in the future should you decide to go back to school.
•   Your transcript is the property of the school you attend, and your school is allowed to withhold it until you are out of default.
•   Your tax refunds may be withheld to repay your defaulted loans. This process is known as a Treasury offset. The government will send a notice of intent to your last known address before these offsets begin, and they will continue until your loan is repaid or the default status of your loan changes.
•   Your employer may be forced to garnish your wages. This means that they will withhold up to 15% of your paycheck and send it to your loan holder to repay your loan. The government will send a notice that explains the intent to garnish your wages in the next 30 days. At this point you may have a chance to enter into a voluntary repayment agreement.
•   You may be taken to court by your loan holder, and you may be liable for court costs, collection fees, attorney fees, and other costs.
•   You are liable for the cost of collecting your defaulted loans. Your default loan may be placed with a private collections agency, which may charge 17.2% of your outstanding balance, including interest and fees. Before your loan is sent to collections, the Department of Education will send you a notice explaining how to avoid this outcome and how to avoid having it reported to the credit bureaus. Having a defaulted loan turned over to a private collections agency can significantly increase the total cost of the loan. That’s because when you make a payment after your loan has been sent to collections, the 17.2% collections cost is taken out first and the remainder is put toward paying off your loan.

Recommended: Types of Federal Student Loans

Private Student Loan Late Payment Penalties

When you miss payments on private student loans, you may face similar consequences as when you miss federal payments. However, private lenders can choose the actions they pursue, and they may operate on completely different timelines.

For example, they may report late payments to credit bureaus or declare that a loan is in default faster than with federal loans.

Private lenders do not have the option of accessing your tax refund to pay back your defaulted loan. However, they can take you to court to gain the ability to garnish your wages.

Lenders may have different policies when it comes to late or missed payments on student loans so check with your lender directly if you have questions about a private student loan.

What To Do If You Miss A Payment

First things first: When you miss a payment, contact your lender immediately and let them know. This is your chance to clue them into any financial hardships that you might be experiencing. For example, if you missed a payment due to job loss or a medical emergency, there may be things your lender can do to help.

If paying off your loans looks like it will be difficult for the foreseeable future, consider deferment or forbearance. Federal student loan deferment is a program offered by the government that allows you to pause student loan payments for up to three years.

The deferment can give you time to put your finances back in order so you can start making regular payments again. Those with direct subsidized loans won’t usually be responsible for paying the interest that accrues over the deferment period. On the other hand, those with unsubsidized loans, are on the hook for those interest payments.

Forbearance can allow you to stop making payments for specific periods. This program can help you if you’re facing short-term emergencies. Unfortunately, interest continues to accrue on your loans, adding to your total cost over time.

Private lenders may or may not have an option that allows borrowers facing financial difficulties to pause their payments.

If you have a federal student loan in default, consider enrolling in a student loan rehabilitation program. To rehabilitate a defaulted Direct Loan or FFEL Program Loan you’ll enter into an agreement with your loan holder under which you’ll make nine affordable monthly payments, each within 20 days of its due date. And you’ll need to make all nine payments during a 10-month consecutive period.

To rehabilitate a Perkins loan, you’ll have to make full monthly payments each month (within 20 days of the due date) for nine consecutive months. Your loan holder will determine the monthly amount you’ll pay.

The Takeaway

Late student loan payments can have consequences for borrowers. For many federal loans, after 90 days of missed payments, the late payments will be reported to the three major credit bureaus. This has the potential to negatively impact an individual’s credit score.

After 270 days of missed payments, a borrower’s loan will be placed in default where additional consequences can kick in. These consequences can include the full total of the loan being due immediately, wage garnishment, and more.

The consequences for late payments on private student loans may vary by lender but can include things like late fees and the loan being sent to a collections agency.

Taking Action

Missing a student loan payment can lead to some serious consequences, especially if you let it go for too long. Understanding the consequences and taking action immediately can help you avoid some of the most serious effects and keep you on track to eliminate your debt.

If the cost of a student loan has become too much, one option borrowers may consider is refinancing to a loan with better terms and a lower interest rate.

Note that refinancing is not the right option for everyone, and borrowers who have struggled to make payments on an existing loan or have a low credit score may not qualify for more competitive terms on a refinanced loan.

Refinancing a federal loan also results in the elimination of federal benefits, such as deferment or forbearance which may be useful tools for borrowers who are struggling to make on-time payments on an existing student loan.

Check out SoFi to learn more about the refinancing student loan options available.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.

IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS, PLEASE BE AWARE THAT THE WHITE HOUSE HAS ANNOUNCED UP TO $20,000 OF STUDENT LOAN FORGIVENESS FOR PELL GRANT RECIPIENTS AND $10,000 FOR QUALIFYING BORROWERS WHOSE STUDENT LOANS ARE FEDERALLY HELD. ADDITIONALLY, THE FEDERAL STUDENT LOAN PAYMENT PAUSE AND INTEREST HOLIDAY HAS BEEN EXTENDED TO DEC. 31, 2022. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE THE AMOUNT OR PORTION OF YOUR FEDERAL STUDENT DEBT THAT YOU REFINANCE WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.

SOSL20046

Jun

2021

The Student Loan Discharge Process Explained

By Alyssa Schwartz | Debt Payoff, Student Loans, student_loan | Comments Off

Being able to forget about a debt altogether—instead of having to pay it back—sounds like a dream come true. But waving goodbye to some types of debt doesn’t always require a Fairy Godmother. For those who qualify for a student loan discharge, it can be possible to make some or all student debt disappear.

Student debt forgiveness, cancellation, and student loan discharge all refer to programs that allow graduates to stop paying off their student loans and cancel out any remaining debt.

There are some slight differences between forgiveness, cancellation, and discharge, generally having to do with the reason for which the debt is discharged.

In each case though, the end result is the same: having a student loan forgiven, canceled, or discharged means no more loan payments and an outstanding balance of zero dollars.

Who Qualifies for Student Loan Discharge?

Student loan forgiveness programs are offered by the federal government for certain individuals working in some public service jobs, including some teaching positions.

With the average annual cost of tuition, fees, room, and board coming in at an average of $21,950 for individuals enrolled in in-state public institutions in 2019-2020, and $49,870 for those attending private schools, it’s unsurprising that many people have to borrow money to fund their education.

The Federal Reserve estimates that some 55% of people under 30 who attended college—and 31% of all adults—had to incur some debt to pay for their schooling, while in all, the total value of all student debt in the U.S. was worth a whopping $1.7-trillion dollars as of December 2020.

While many of these individuals will have to repay their student loans, some may qualify for student loan discharge and forgiveness programs.

Individuals may also apply for a federal student loan discharge under certain circumstances such as total and permanent disability, school closure, and, in some cases, bankruptcy.

Student loan discharge programs are intended for individuals with federal student loans. But the type of loan matters too. With the exception of Borrower Defense to Repayment, which is available for Direct Loans only, all of the below discharge programs are available for both Direct and FFEL Program loans.

Perkins Loans have their own forgiveness and discharge programs, though most of the below scenarios qualify. Note that the Perkins Loan program ended in 2017.

There are no blanket programs or rules about private student loan discharge. While some lenders will discharge a student loan in the event of disability or death, there are no regulations obligating them to do so.

Types of Federal Student Loan Discharge Programs

The federal government offers a number of programs for canceling or discharging student debt.

Forgiveness/cancellation programs are generally available to individuals who:

• work in the public sector, for a government or not-for-profit organization
• or for full-time teachers at low-income schools or educational services agencies, who have been employed there for five full consecutive years.

There are also a number of circumstances under which an individual may qualify to have their student loan discharged. Read on for more details on the different reasons federal student loans may be discharged.

Recommended: Types of Federal Student Loans

Closed School Discharge

Individuals may be eligible for a 100% discharge on some types of student loans if their school closes while they are still enrolled or soon after they withdraw. Students on an approved leave of absence at the time of school closure are still eligible.

There are some exceptions:
• For loans disbursed prior to July 1, 2020, an individual may not have withdrawn from their program more than 120 days before the school closure (180 days prior to closure for loans disbursed after July 1, 2020)
• The individual may not have completed the coursework for their program prior to the closure
Students cannot transfer to another school to complete the program or do so via other means

Total and Permanent Disability Discharge

In order to qualify for a total and permanent disability discharge, an individual must be able to provide documentation that they have become totally and permanently disabled. There are only three allowed sources that can provide the documentation required to qualify:
•   the U.S. Department of Veteran Affairs
•   the Social Security Administration
•   or a physician

Each of these sources carries unique requirements in order to verify eligibility.

Discharge Due to Death

A federal student loan may be discharged with acceptable proof of death. Documentation such as a death certificate generally qualifies as acceptable proof of death.

Discharge in Bankruptcy

Though not automatic, it is possible to have a student loan discharged in the event of Chapter 7 or Chapter 13 bankruptcy. This discharge requires a separate legal action, called an adversary proceeding, in which the court must agree that having to continue to repay the debt would impose an undue hardship on the individual.

In addition to discharges granted due to an individual’s personal circumstances, there are also some scenarios where the school’s actions may confer eligibility. These include:
•   Borrower Defense to Repayment: if the school engaged in certain types of misconduct based on certain state laws
•   False Certification Discharge: if an individual’s school falsely certifies their ability to receive a loan
•   Unpaid refund discharge: if an individual withdraws but the school does not return loan funds as required

The Takeaway

There are a few programs that allow eligible borrowers to discharge their student loan debt. For private student loans, there is no universal rule or regulation governing discharge.

While getting rid of student debt would indeed be a dream come true for most people, the stringent requirements for receiving federal student loan discharge means many people are not eligible.

But that doesn’t mean there aren’t other ways to reduce the burden. Refinancing a student loan is one way to help lower the total cost of student debt by tapping into more favorable interest rates for qualifying borrowers, which could reduce the total amount of interest paid.

The benefits of federal student loans are eliminated when the loan is refinanced, so those pursuing federal loan forgiveness, and others, may not want to refinance.

Learn more about whether student loan refinancing is the right option for you.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.

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Jun

2021

5 Key Pieces of Finance Advice for All Med School Grads Starting Residency

5 Financial Tips for Med School Grads Starting Residency

By SoFi | Debt Payoff, Fresh Out of School, Student Loans, student_loan | No Comments

Congratulations! After years of rigorous studying, training, and overall hard work, you’ve graduated from medical school. At this point, you’ve likely made it through Match Day and are ready to start a residency, even closer to becoming a fully fledged doctor.

Though the relief of graduation is certainly well deserved, medical school isn’t going to disappear from your rearview mirror soon. If you’re like most medical students, you likely finished school with a considerable amount of debt.

According to the Association of American Medical Colleges , 84% of medical students in the graduating class of 2020 had education debt (premedical and medical) of $100,000 or more, with 54% of graduates owing $200,000 or more and 20% owing $300,000 or more.

And while doctors can potentially make quite a bit of money—pediatricians earn an average of $232,000 and orthopedic specialists make $511,000, according to Medscape’s 2020 annual compensation report , for example—the average resident does not.

So, what’s a resident to do? Unfortunately, for some, finances may continue to be a challenge in the years immediately after graduating from medical school, so it could be helpful to take steps to lessen the financial anxiety that can accompany such a significant debt load.

The good news is most physicians could be on track to pay off their debt quicker than those in other fields with lower earning potential. But, even once you make the big bucks as a doctor and negotiate a sizable physician signing bonus, you’ll likely look to maintain your financial well-being.

Here, we take a look at some steps that may help you to get the most out of your money post-med school-and manage your student loans.

Making a Post-Med School Budget and Sticking to It

Residency can feel like a time when you’re struggling to make ends meet while working 12-hour shifts on your way to becoming a doctor. Being placed in a city with a high cost of living only increases the challenge.

The average resident salary in 2020 was $63,400, according to Medscape’s 2020 annual report . This may not go as far as it would seem to someone who has been in school earning no money.

Creating a budget that makes sense for your current circumstances and sticking to it will help. This might not include a fancy car (yet), and unless you’ve already signed a medical contract to stay in the same city after your residency, then it may not include buying a house either—even if you might be tempted by a mortgage loan.

Budgeting doesn’t end once you’re done with residency, either. If you can stick to your resident budget for an extra year or two, you may be able to save up money to pay down more on your student loans and start your medical career with some cash.

After all, the rate at which you are able to become debt-free may largely depend on your budget and lifestyle, not just your income.

Having an Emergency Fund and a Retirement Account

Typically, a good financial wellness rule of thumb is to aim to have a few months’ worth of your income saved up for an emergency fund. And yes, this is even applicable for doctors, who, like everyone else, could have something happen that ends up being a huge expense.

Given this, one good idea may be to start stashing away money whenever you can, and putting this emergency money into a separate account from your regular checking account. This way, you can know that it’s there but not be tempted to use it.

Though retirement may seem like a lifetime away—especially after recently finishing up school—saving for retirement as soon as is practical is a common financial goal. It’s also helpful to get into the habit of putting away something regularly. With a solid budget in place, you may be less likely to have to pick between paying down student loans and setting aside for retirement: it’s possible to do both.

Depending on your situation and goals, you may want to invest your money in a 401(k), 403(b), or a traditional or Roth IRA. It may be helpful to keep in mind that one easy way to up your retirement savings is by contributing enough to your employer-sponsored plan to max out on any company match. If your work doesn’t offer a retirement savings plan, consider opening an IRA with SoFi and get access to a broad range of investment options, member services, and a robust suite of planning and investment tools.

Considering an Income-Driven Loan Repayment Plan

You might find yourself feeling tempted to put your medical school student loans (if they’re federal student loans) on hold or into forbearance while you finish residency, but that move could still rack up interest and leave you further in debt.

Instead, you might consider an income-driven repayment plan that establishes monthly payments based on your income and family size.

It may not be as fast as sticking with traditional repayment plans, but if it’s necessary, this method could potentially help you avoid ballooning interest payments while you’re in residency, and typically lowers your monthly payments by lengthening your loan term. (Repayer beware: longer loan terms mean more interest payments, so it’s likely you’ll pay more for your loans overall.)

For med school graduates, there are a few federal income-driven repayment plans you may want to consider: income-based repayment (IBR), income-contingent repayment (ICR), and Pay As You Earn (PAYE).

The eligibility requirements will vary for each type of plan, and you may have to pay more once you sign a medical contract or earn more as a doctor, as income for plans such as PAYE is reviewed on an annual basis. Still, it’s helpful to consider the different options out there and choose what works best for you. And if you choose to practice medicine in underserved communities—as we’ll explain in more detail below—an income-driven repayment plan may be part of that picture.

Checking out Student Loan Forgiveness Programs

Another potential option you may want to look into is going into a public service program. This option allows for a particularly attractive perk for doctors: student loan debt forgiveness.

Public Service Loan Forgiveness (PSLF) is one such program run by the U.S. Department of Education that forgives the remainder of federal loans after participants have met certain eligibility requirements, such as ten years’ worth of on-time, eligible monthly payments and working for a qualifying employer, which typically includes government or certain nonprofit organizations.

The good news is that these programs may tie in nicely with the work you already want to do as a doctor. If you’ve always wanted to go into public service and also find yourself feeling overwhelmed by the prospect of paying off all of your debts, then this may be a great option.

Even if you’re not entirely sure, it may be a good idea to get started with the process now because you will need to ensure your repayment plan is on track in order to qualify later—and that may require one of the income-driven plans mentioned above.

To set yourself up financially for this situation, first you may need to consolidate your federal loans into a Direct Consolidation Loan, but it’s wise to carefully review the PSLF program requirements first.

Additionally, the National Institutes of Health (NIH) and the National Health Service Corps (NHSC) also have med school loan repayment programs for doctors who are interested in doing medical research for a nonprofit organization (through NIH programs) or health care work in a high-need area (via the NHSC program).

Many states also run their own loan forgiveness and repayment programs for doctors, which are worth looking into if you’re interested in this route. Keep in mind, there may be several different options that can help you get your loans forgiven.

Looking into Refinancing Your Student Loans

Dealing with student debt can be one of the most stressful things people experience in their lifetime. After years of hard work, graduating into a world of six-figure debt can sometimes feel anti-climatic, but rest assured that there are options.

Even if the above strategies aren’t a fit for you, there are other ways to move forward. Depending on your exact situation and needs, you may be a good candidate for student loan refinancing, which allows you to consolidate outstanding loans and may reduce your interest rates, as well as your stress levels.

(Keep in mind that refinancing your student loans with a private lender will mean that federal loan benefits, such as PSLF and income-driven repayment, will no longer be available to you.)

Refinancing your loans at a lower interest rate can be a fairly simple way to save money on the lifetime cost of your loan. SoFi has a number of student loan refinance options for medical school graduates, with variable or fixed interest rates and no application fees.

Don’t let your loans keep you from financial wellness. Consider refinancing your medical school student loans with SoFi, and see if you can save yourself money in the long run.

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SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.

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Spark an Economic Upswing

Benefit All Federal Student Loan Borrowers

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Federal and Other Programs

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The Student Loan Discharge Process Explained

Who Qualifies for Student Loan Discharge?

Types of Federal Student Loan Discharge Programs

Closed School Discharge

Total and Permanent Disability Discharge

Discharge Due to Death

Discharge in Bankruptcy

The Takeaway

5 Financial Tips for Med School Grads Starting Residency

Making a Post-Med School Budget and Sticking to It

Having an Emergency Fund and a Retirement Account

Considering an Income-Driven Loan Repayment Plan

Checking out Student Loan Forgiveness Programs

Looking into Refinancing Your Student Loans

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