Editor's Note: Since the writing of this article, President Biden signed the debt ceiling bill on June 4, canceling the federal student loan payment pause as of Aug 30, or “60 days after June 30.” Later this month, the Supreme Court will decide whether the Biden-Harris Administration’s Student Debt Relief Program can proceed. Loan payments are expected to resume in October.
With Americans facing over $1.6 trillion in combined student loan balances, many borrowers are on the hunt for ways to ease their debt burden. One option you may have seen was called the Obama Student Loan Forgiveness Plan, which according to some websites, was a way for some borrowers to escape their debt for a small fee.
This offer might sound appealing, but there’s one problem: It’s fake. It’s just one example of real ads that scammers have used to target and bilk borrowers.
Fraudsters have used lines like this to lure in their marks, then charged them hefty fees to fill out forms they could’ve filled out themselves for free. In the worst cases, people end up paying for nonexistent services.
Here are some answers to your burning questions on student loan forgiveness, so you can get a better idea of how the program works:
Does Any Student Loan Forgiveness Act Exist?
Yes. The Student Loan Forgiveness Act (SLFA) was a congressional bill introduced in 2012 intended to help borrowers with paying down their student debt.
In addition to capping interest rates for all federal loans, the proposed law would have introduced a repayment plan that allows borrowers to have their loans forgiven after 10 years if they made monthly payments equivalent to 10% of their adjusted gross income. The bill also would have made borrowers in public service jobs eligible for loan forgiveness after five years, instead of 10.
Sound too good to be true? It was. The bill never made it out of committee.
So, What is Obama’s New Student Loan Forgiveness Program?
Even though you may have heard about it, “Obama’s new student loan forgiveness program” doesn’t exist. During his tenure, President Obama did expand the reach of federal loan forgiveness programs. A bill he signed in 2010 allowed students who took out certain federal loans to have their balances forgiven in 20 years, rather than 25.
The same bill capped annual payments at 10% of adjusted gross income, rather than 15%. It also ushered in loan forgiveness after 10 years for borrowers working in qualified public service jobs.
Those changes preceded the introduction of the Student Loan Forgiveness Act (SLFA), and was never officially called “Obama’s Student Loan Forgiveness Program.” Likewise, there is no “new” student loan forgiveness program in Obama’s name, either, obviously.
Then Why Have I Read About Obama’s New Student Loan Forgiveness Program?
Because it’s a term that debt relief companies use to confuse student loan borrowers. The name seems convincing since President Obama did take action on federal student loans and legitimate federal loan forgiveness programs exist. That’s why some borrowers have been duped into paying high fees for pointless—or nonexistent—services. Don’t be fooled: The program isn’t real!
Debt relief companies advertising the “Student Loan Forgiveness Act” or “Obama’s New Student Loan Forgiveness Program” are bad news. Understanding which programs are real and which are fake can help you avoid being scammed—and find legitimate ways to actually have some of your student loans forgiven.
What Are Some Legitimate Options for Student Loan Forgiveness?
No, Obama’s Student Loan Forgiveness Act never passed. However, there are several real options for having federal student loans forgiven.
In fact, in response to the coronavirus epidemic, the CARES Act suspended federal student loan interest and payment suspension through September 2020. (Update: The pause on federal student loan repayment has been extended through Dec. 31, 2022)
The pending HEROES Act (narrowly passed by the House in mid-May, 2020) proposed $10,000 each of federal student loan AND private student loans forgiveness initially but may have more stringent eligibility requirements if passed by the Senate. While it’s definitely something to keep an eye on, here are some existing programs that may be helpful.
Income-Driven Repayment Plans
The government currently offers four income-driven repayment plans for federal student loans that can forgive borrowers’ balances after 20 or 25 years.
There are eligibility requirements, like making required monthly payments for a designated period of time, which are tied to a person’s income. The plans a borrower qualifies for will depend on the types of loans they have and when they took them out.
These student loan repayment plans are based on borrowers’ discretionary income, or the amount they earn after subtracting necessary expenses like taxes, shelter, and food. Here is a brief overview of each one:
• Revised Pay As You Earn Repayment Plan (REPAYE): Borrowers’ monthly payment is typically 10% of their income. If all loans were taken out for undergraduate studies, they’ll make payments for 20 years; if they also took out loans for graduate or professional studies, they’ll make payments for 25 years. At the end of 20 or 25 years, the remaining amount will be forgiven.
• Pay As You Earn Repayment Plan (PAYE): People pay up to 10% of their discretionary income each month, but they never pay more than they would under the 10-year Standard Repayment Plan. After 20 years, the remaining debt will be forgiven.
• Income-Based Repayment Plan (IBR): People will pay 10% of their discretionary income for 20 years if they became a new borrower on or after July 1, 2014, and 15% for 25 years if they were a borrower before July 1, 2014. They will never pay more than they would under the 10-year Standard Repayment Plan. Borrowers’ debt will be forgiven after either 20 or 25 years.
• Income-Contingent Repayment Plan (ICR): Borrowers choose whichever repayment plan is cheaper—20% of their discretionary income or what they would pay if they spread their payments out equally over 12 years. Any remaining balance will be forgiven after 25 years.
These four plans are designed to help borrowers make monthly payments they can actually afford. Some people may assume that an income-driven repayment plan that results in forgiveness is best for them, when in reality, this might not be the case.
Note that if the remaining balance of your loan is forgiven, you may be responsible for paying income taxes on that amount.
A repayment calculator can be a useful tool to help determine enrolling in an income-based forgiveness program that would be beneficial. After a borrower plugs in their information, they could discover that they would pay less, in the long run, should they enroll in, say, the government’s Standard Repayment Plan.
Public Service Loan Forgiveness
Borrowers can have their loans forgiven in 10 years under the Public Service Loan Forgiveness (PSLF) program. To potentially qualify, they must work full-time for a qualified government organization, nonprofit, or certain public-interest employers, such as a public interest law firm, public library, or public health provider.
Over those 10 years, borrowers must make 120 qualifying monthly payments, and the payment amount is based on their income. Those 120 payments don’t necessarily have to be consecutive. For example, let’s say a borrower works for the local government for three years, then switches to the private sector for a year.
If they decide to go back into public service after that year, they can pick up where they left off with payments rather than start all over.
The PSLF program can be difficult to qualify for, but some people have successfully enrolled. As of March 2020, 145,758 borrowers had applied for the program. Only 3,174 applications were accepted. 171,321 applications had been rejected, and the remaining applications were still processing.
Teacher Loan Forgiveness Program
Qualifying teachers can also get up to $17,500 of their federal loans forgiven after five years teaching full-time under the Teacher Loan Forgiveness Program. The American Federation of Teachers has a searchable database of state and local loan forgiveness programs.
To qualify for the full amount, teachers must either teach math or science at the secondary level, or teach special education at the elementary or secondary level. Otherwise, borrowers can have up to $5,000 forgiven if they are a full-time teacher at the elementary or secondary level.
NURSE Corps Loan Repayment Program
Health professionals have access to other loan assistance programs. The federal government’s NURSE Corps Loan Repayment Program pays up to 85% of eligible nurses’ unpaid debt for nursing school.
To receive loan forgiveness, borrowers must serve for two years in a Critical Shortage Facility or work as nurse faculty in an accredited school of nursing.
After two years, 60% of their nursing loans will be forgiven. If a borrower applies and is accepted for a third year, an additional 25% of their original loan amount will be forgiven, coming to a total of 85%.
Borrowers interested in the NURSE Corps Loan Repayment Program can read about what qualifies as a Critical Shortage Facility or an eligible school of nursing before applying.
Indian Health Services’ Loan Repayment Program
The Indian Health Services’ Loan Repayment Program will repay up to $40,000 in qualifying loans for doctors, nurses, psychologists, dentists, and other professionals who spend two years working in health facilities serving American Indian or Alaska Native communities.
Once a borrower completes their initial two years, they may choose to extend their contract each year until their student loans are completely forgiven.
In 2019, the Indian Health Service’s budget allows for up to 384 new awards for two-year contracts, and around 392 awards for one-year contract extensions. The average award for a one-year extension is $24,840 in 2019.
Even those who aren’t typical medical professionals, like doctors or nurses, may still qualify. The IHS has also provided awards to people in other fields, such as social work, dietetics, and environmental engineering.
The National Health Service Corps
The National Health Service Corps offers up to $50,000 for loan repayment to medical, dental, and mental health practitioners who spend two years working in underserved areas.
Loan forgiveness programs are generally available for federal loans, as opposed to private ones. In rare cases, such as school closure while a student is enrolled or soon after, they could qualify to have their loan discharged or canceled.
Health Professional Shortage Areas (HPSAs) include facilities such as correctional facilities, state mental hospitals, federally qualified health centers, and Indian health facilities, just to name a few. Each HPSA receives a score depending on how great the site’s need is.
Scores range from 0 to 25 for primary care and mental health, and 0 to 26 for dental care. The higher the score, the greater the need.
Borrowers have the option to enroll in either a full-time or part-time position, but people working in private practice must work full-time. Full-time health professionals may receive awards up to $50,000 if they work at a site with a score of at least 14, and up to $30,000 if the site’s score is 13 or below. Half-time employees will receive up to $25,000 if their site’s score is at least 14, and up to $15,000 if the score is 13 or lower.
Interested in learning more about your options for student loan repayment? Check out SoFi’s student loan help center to get the answers you need about your student debt. The help center explains student loan jargon in terms people can understand, provides loan calculators, and even offers student loan refinancing to hopefully land borrowers lower rates.
Refinancing student loans through a private lender can disqualify people from enrolling in federal loan forgiveness programs and loan forgiveness programs, and disqualifies them from CARES Act forbearance and interest rate benefits.
SoFi Student Loan Refinance CLICK HERE for more information. Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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 beyond December 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. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.
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.
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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.