Student Loan Forgiveness: Programs for Relief and Mass Forgiveness

Student Loan Forgiveness During the Biden Administration

For more than two years, the national payment pause on federal student loans meant a suspension of loan payments, a 0% interest rate, and ceased collections on defaulted loans. It was mandated by the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act passed by Congress. The pause affected everyone who was paying a federal student loan, regardless of income.

The payment pause was originally set to end on September 22, 2020. It was extended at least six times, first by President Donald Trump and then by President Joe Biden.

In the past year, Biden has focused on improving, extending, and expanding some of the government’s existing programs. Nearly $25 billion in student loan debt has been wiped away since he took office. The beneficiaries include permanently disabled people, those who were defrauded by failed for-profit schools, and soldiers sent to war zones.

In the Aug. 24th statement, Biden said, “Since 1980, the total cost of both four-year public and four-year private college has nearly tripled, even after accounting for inflation. Federal support has not kept up.”

According to the White House, “Middle-class borrowers struggle with high monthly payments and ballooning balances that make it harder for them to build wealth, like buying homes, putting away money for retirement, and starting small businesses. For the most vulnerable borrowers, the effects of debt are even more crushing.”

What Is Student Loan Forgiveness?

Forgiveness of your loan means that you are no longer required to repay some or all of that student loan. In this context, “forgiveness” means absolving or giving up all claims on account of debt, loan, obligation, or another claim.

Before the CARES Act pause was put into action, student loan forgiveness was connected to your type of job (public-service careers were targeted), how long you had made qualifying payments, and sometimes which populations you served.

Forgiveness of student loan debt due to your chosen career was changed substantially. The intent is to make it easier to obtain.

As for the new Student loan debt cancellation announced by Biden, it is often called “forgiveness,” though it is somewhat different in nature. These cancellations of debt are tied to the loan holder’s income rather than choice of career.

Whatever the reason, the effect is the same: a reduction in the amount of federal student debt people owe.

New Plan To Cancel Student Debt

Biden announced in August that the Department of Education (DOE) will provide up to $20,000 in student loan cancellation to Pell Grant recipients with loans held by the DOE. Pell Grants are awarded only to undergraduate students who display exceptional financial need.

Some 27 million Pell grant recipients will be eligible for the $20,000 student loan cancellation, according to a Department of Education estimate.

People paying down their federal loans who are not Pell Grant recipients can get up to $10,000 in debt cancellation if their individual income is less than $125,000 ($250,000 for married couples).

The Department of Education said it will “work quickly and efficiently” to set up a simple application process for borrowers to claim relief.

The applications for student loan debt cancellation will be available no later than when the pause on federal student loan repayments terminates at the end of the year.

Note: Nearly 8 million borrowers may be eligible to receive relief automatically because their relevant income data is already available to the DOE.

Student Loan Forgiveness for Government & Nonprofit Workers

In the August statement, the White House said it will focus on helping borrowers who have worked at a nonprofit, in the military, or in federal, state, tribal, or local government.

The government has been offering forgiveness on student loan debt held by people whose jobs serve the public for a number of years.

However, many criticized these existing programs as too hard to understand and qualify for, and subsequently too few people received the loan repayments. The Biden Administration made efforts to “cut the red tape” and strengthen this type of forgiveness

“Because of complex eligibility restrictions, historic implementation failures, and poor counseling given to borrowers, many borrowers have not received the credit they deserve for their public service,” said the White House.

Public Service Loan Forgiveness (PSLF)

If you have worked in public service (federal, state, local, tribal government or a non-profit organization) for 10 years or more (even if not consecutively), you may be eligible to have all your student debt canceled.

“Now, for a limited time, it is easier than ever to receive that forgiveness, or get credit toward forgiveness, if you have not yet served 10 years,” said the White House. But you must apply before October 31, 2022.

Designed to steer people toward careers that help the public but might not pay a high salary, the Public Service Loan Forgiveness (PSLF) program cancels (or “forgives”) federal student loan debt for people holding certain public and nonprofit jobs after they have worked in these career for a number of years.

The DOE has already approved more than $10 billion in debt relief for over 175,000 borrowers in the last 10 months through the PSLF program.

Eligibility

Any U.S. federal, state, local, or tribal government agency is considered a government employer for the PSLF Program. This includes employers such as the U.S. military, public elementary and secondary schools, public colleges and universities, public child and family service agencies, and special governmental districts (including entities such as public transportation, water, bridge district, or housing authorities).

You can find out if you are eligible by using the PSLF Help Tool on the government website. It will help you learn what the next steps are if you qualify.

Requirements

To ensure borrowers are aware of the changes, the White House has launched four PSLF Days of Action dedicated to borrowers in specific sectors: government employees, educators, healthcare workers, and first responders, and non-profit employees.

Among the changes in PSLF:

•  You no longer must have served the minimum of 10 years consecutively.

•  Those who have served less than 10 years may now more easily get credit for their service to date toward eventual forgiveness.

•  These changes will allow eligible borrowers to gain additional credit toward forgiveness, even if they had been told previously that they had the wrong loan type.

•  The DOE has proposed allowing more payments to qualify for PSLF including partial, lump sum, and late payments

•  The DOE will allow certain kinds of deferments and forbearances, such as those for Peace Corps and AmeriCorps service, National Guard duty, and military service, to count toward PSLF.

•  The rules will also work better for non-tenured instructors whose colleges need to calculate their full-time employment.

Application Process

You must apply to PSLF.gov before the temporary changes end on October 31, 2022.

Federal Perkins Loan Cancellation

A Federal Perkins Loan, or Perkins Loan, delivered needs-based aid to college students as part of the Federal Direct Student Loan Program. It ended in 2017, but Perkins loan forgiveness programs are available.

Perkins loan holders who work in a public service position, such as teacher, nurse, or firefighter, can have their student debt partially or fully erased after working in these approved public service jobs for five years and making qualifying payments.

Eligibility

You qualify for cancellation of up to 100% of a Federal Perkins Loan if you have served full time in a public or nonprofit elementary or secondary school system as a:

•  Teacher in a school serving students from low-income families;

•  Special education teacher, including teachers of infants, toddlers, children, or youth with disabilities; or

•  Teacher in the fields of mathematics, science, foreign languages, or bilingual education, or in any other field of expertise determined by a state education agency to have a shortage of qualified teachers in that state.

Requirements

The cancellation rate per completed academic year of full-time teaching or for each year of otherwise qualifying full-time service is:

•  15% of the original principal loan amount for each of the first and second years;

•  20% of the original principal loan amount for each of the third and fourth years; and

•  30% of the original principal loan amount for the fifth year

Application Process

Application for cancellation or discharge of a Perkins Loan must be made to the school that made the loan or to the school’s Perkins Loan servicer, according to studentaid.gov. The school or its servicer can provide forms and instructions specific to your type of cancellation or discharge.

Student Loan Forgiveness for Teachers

While the PSLF offers forgiveness for teachers, there is another program, Teacher Loan Forgiveness, that helps people repay their federal loans. Note: Borrowers usually can’t receive credit toward Teacher Loan Forgiveness and PSLF for the same period.

Teacher Loan Forgiveness

Highly qualified teachers may be able to get forgiveness of up to $17,500 on their Direct Subsidized and Unsubsidized Loans and their Federal Stafford Loan.

Eligibility

Under this program, if you teach full-time for five complete and consecutive academic years in a low-income school or educational service agency and meet other qualifications, you may be eligible for forgiveness.

Requirements

To be a “highly qualified teacher,” you must have

•  attained at least a bachelor’s degree;

•  received full state certification as a teacher; and

•  not had certification or licensure requirements waived on an emergency, temporary, or provisional basis.

You’re considered to have received full state certification even if you received your certification through alternative routes to certification or bypassing the state teacher licensing examination.

If you’re a teacher at a public charter school, you are considered to have received full state certification as a teacher if you meet the requirements set forth in the state’s public charter school law.

Application Process

You apply for this forgiveness by submitting a completed Teacher Loan Forgiveness Application to your loan servicer after you’ve completed five consecutive years of qualifying teaching.

Student Loan Repayment Assistance Programs for Teachers

Some states also offer repayment programs for teachers. Among examples: The state of Tennessee has loan forgiveness for math and science teachers and Oklahoma has a Teacher Shortage Employment Incentive Program.

The American Federation of Teachers’ database will let you see if your state or local government offers separate forgiveness options.

Student Loan Forgiveness for Nurses

Nurses can pursue different programs for forgiveness of their student loans.

NURSE Corps Loan Repayment Program

Loan repayment is available to registered nurses (RN), nurse faculty (NF), and advanced practice registered nurses (APRN) through the Nurse Corps Loan Repayment Program. The program gives funding preference to those who need the most help financially.

Eligibility

To be eligible, you must have received your nursing education from an accredited school of nursing located in a U.S. state or territory. And you must work full time in an eligible Critical Shortage Facility (CSF) in a high-need area.

Requirements

If your application is accepted, you will receive 60% of your total outstanding, qualifying, nursing education loans over the course of two years. After your two-year service contract, you may be eligible for a third year and an additional 25% of your loans.

These funds are not exempt from federal income and employment taxes.

Application Process

Applications for the program can be found on the Nurse Corps website.

Student Loan Repayment Assistance for Nurses

In addition to the Nurse Corps Loan Repayment Program, loan holders can investigate the National Health Service Corps Loan Repayment Program (NHSC LRP), another student loan forgiveness option offered through the Health Resources and Services Administration.

Full-time nurse practitioners, psychiatric nurse specialists, and nurse-midwives may be able to cancel up to $50,000 of both federal and private student loan debt through the program. Part-time nurse practitioners and nurse-midwives may receive up to $25,000 in loan forgiveness.

In exchange for loan forgiveness, you must commit to at least two years of service at an NHSC-approved facility.

Student Loan Forgiveness for Doctors & Health Care Professionals

Medical professionals and healthcare workers have access to some respected student loan forgiveness programs. Their role during the pandemic as frontline workers made helping them with their loans a priority. Some of these programs forgive loans, while others provide money to student loan borrowers in the form of a loan repayment program.

Among the programs that help healthcare workers with their loans are Public Service Loan Forgiveness (PSLF), the Perkins Loan Cancellation, and the NIH loan repayment programs (LRPs).

National Health Service Corps (NHSC) Loan Repayment Assistance

Nurses are one category of worker getting student loan forgiveness from NHSC. Licensed primary-care clinicians in eligible disciplines can also receive loan repayment assistance through the NHSC Loan Repayment Program (NHSC LRP).

In exchange for loan repayment, you must serve at least two years of service at an NHSC-approved site in a Health Professional Shortage Area (HPSA).

Student Loan Forgiveness for Lawyers

With the hefty tuition bills they shoulder, lawyers would be understandably delighted to discover they qualify for student loan forgiveness.

One path to just that is Public Service Loan Forgiveness (PSLF), which provides tax-free forgiveness on federal direct loans to borrowers who work for public-service employers. As a lawyer, that means working full time for a government entity or a 501(c)(3) nonprofit.

Perkins loan forgiveness is another path for full-time public or community defenders who can have 100% of these loans forgiven over five years of service.

Many states provide assistance to lawyers focused on public service.

Military Student Loan Forgiveness and Assistance

Members of the Armed Forces may qualify for forgiveness of the remaining balance of their Federal Direct Loans through Public Service Loan Forgiveness (PSLF).

In addition, while you are on active duty, the government can waive many of the documentation requirements attached to federal student loan benefits. For example, if you are on an income-driven repayment plan and military service prevents you from providing updated information on your family size and income, you can request to have your monthly payment amount maintained.

Student Loan Forgiveness for Volunteers

If you are a Peace Corps or AmeriCorps volunteer, you may qualify for loan forgiveness. AmeriCorps Volunteers in Service to America focuses on alleviating poverty through partnerships with government agencies and nonprofit organizations. Participants in AmeriCorps VISTA, who perform tasks such as fundraising and grant writing, must commit to a one-year term of full-time service and may serve for up to five years in total.

After completing their service requirement, volunteers are eligible for the Segal Education Award or a cash stipend of $1,800, in which case the volunteer also may be eligible for up to 15% cancellation of certain kinds of student loans.

Student Loan Repayment Assistance from your Employer

Many employers subsidize their workers’ repayment of student loans as a benefit. Employers can offer up to $5,250 in student loan repayments tax-free through 2025. Such policies serve as an incentive to keep valued employees. Ask your boss if they have a student loan repayment benefit.

Student Loan Forgiveness by Federal Repayment Plan

Many federal student loan holders are eligible for an income-driven repayment plan at some point. An income-driven plan sets your monthly student loan payment at an amount that is intended to be affordable based on your income and family size.

Biden is changing the income-driven plans substantially.

According to the White House, “Most of these plans cancel a borrower’s remaining debt once they make 20 years of monthly payments. But the existing versions of these plans are too complex and too limited. As a result, millions of borrowers who might benefit from them do not sign up, and the millions who do sign up are still often left with unmanageable monthly payments.”

How to get student loan forgiveness through the new income-driven plans is still being worked out.

Biden’s New Income-Driven Forgiveness Plan

The DOE is overhauling the income-driven federal loan repayment plan in the following ways:

•  For undergraduate loans, cut in half the amount that borrowers have to pay each month from 10% to 5% of discretionary income.

•  Raise the amount of income that is considered non-discretionary income and therefore is protected from repayment, guaranteeing that no borrower earning under 225% of the federal poverty level—about the annual equivalent of a $15 minimum wage for a single borrower—will have to make a monthly payment.

•  Forgive loan balances after 10 years of payments, instead of 20 years, for borrowers with original loan balances of $12,000 or less. The Department of Education estimates that this reform will allow nearly all community college borrowers to be debt-free within 10 years.

•  Cover the borrower’s unpaid monthly interest, so that unlike other existing income-driven repayment plans, no borrower’s loan balance will grow as long as they make their monthly payments—even when that monthly payment is $0 because their income is low.

Forgiveness with Income-Based Repayment (IBR)

The existing Income-Based Repayment Plan (IBR) is a repayment plan with monthly payments that are generally equal to 15% (10% if you are a new borrower on or after July 1, 2014) of your discretionary income, divided by 12.

Note: The Biden administration has proposed a new income-driven repayment plan that includes cutting payments to 5% of discretionary income. See above for more of the proposed details.

Eligibility

Generally, you’ll meet this requirement if your federal student loan debt is higher than your annual discretionary income or represents a significant portion of your annual income

To determine if you would qualify for a lower monthly payment amount under the Income-Based Repayment Plan, check out the Loan Simulator or contact your loan servicer.

Forgiveness with Pay As You Earn (PAYE)

The existing Pay As You Earn Plan is a repayment plan that caps federal student loan payments at 10% of your discretionary income and forgives your remaining balance after 20 years of repayment.

Note: The Biden administration has proposed a new income-driven repayment plan changes to the IBR Plan that includes cutting payments to 5% of discretionary income. See above for more of the proposed details.

Eligibility

PAYE has an eligibility requirement you must meet to qualify for the plan. To qualify, the payment you would be required to make under the PAYE (based on your income and family size) must be less than what you would pay under the Standard Repayment Plan with a 10-year repayment period.

PAYE is a solid option if you can’t afford your payments and didn’t start college until after 2007.

Recommended: REPAYE vs PAYE: What’s the Difference?

Forgiveness with Revised Pay As You Earn (REPAYE)

Under the REPAYE plan, your payment is always based on your income and family size, regardless of any changes in your income.

Note: This plan may undergo changes due to the Biden forgiveness policy overhaul.

Eligibility

REPAYE is a solid option if you’re single and you don’t have graduate school debt. Use Federal Student Aid’s Loan Simulator to see how much you might pay under this plan.

Forgiveness with Income-Contingent Repayment (ICR)

Any borrower with eligible federal student loans can make payments under this plan.

This plan is the only available income-driven repayment option for parent PLUS loan borrowers. Although PLUS loans made to parents can’t be repaid under any of the income-driven repayment plans (including the ICR Plan), parent borrowers may consolidate their Direct PLUS Loans or Federal PLUS Loans into a Direct Consolidation Loan and then repay the new consolidation loan under the ICR Plan (though not under any other income-driven plan).

ICR costs more each month than other income-driven repayment plans. It caps payments at 20% of your discretionary income and lasts 25 years.

Note: This plan may undergo changes due to the Biden forgiveness policy overhaul.

Eligibility

ICR is a favored income-driven choice if you have parent PLUS loans or a consolidation loan that includes parent PLUS loans and you want slightly lower payments to potentially pay less interest.

Student Loan Discharge for Special Circumstances

If you’re no longer required to make payments on your loans due to other circumstances, such as a total and permanent disability or the closure of the school where you received your loans, this is called discharge.

In some cases, you can have your federal student loan discharged after declaring bankruptcy. However, discharge in bankruptcy is uncommon and not an automatic process.

State-based Student Loan Repayment Assistance Programs (LRAPs)

Along with the student loan forgiveness options provided by the federal government — which are available to anyone anywhere in the U.S. — individual states have their own debt cancellation programs.

As of June 2022, 49 states and the District of Columbia offer at least one student loan forgiveness program.

More information is available in the states themselves.

Student Loan Forgiveness for Private Education Debt

Many lenders of private student loans do not offer forgiveness for debt owed or student loan cancellation. The exceptions are permanent disability and death.

Some lenders do make individual arrangements if you contact them and make a case for severe reduction of income. Reach out to your lender to find out if any accommodation can be made or if refinancing would help.

What about taxes on student loan forgiveness?

It is unclear if the Internal Revenue Service will treat forgiven or canceled student loan debt as taxable income.

CNBC reported, “The American Rescue Plan of 2021 made student loan forgiveness tax-free through 2025 — and the law covers Biden’s forgiveness too.”

However, other financial advisers or media figures say there could be tax consequences on state returns, and perhaps the federal returns as well.

If you have debt forgiven, please contact an accountant to see what the consequences are for your tax return.

Student Loan Forgiveness Scams

Unfortunately, student loan forgiveness scams exist. Clues are when they promise immediate forgiveness, say the programs are “first-come, first serve,” ask for a fee to process your payment, or solicit you asking for bank or identity information upfront.

Recommended: How To Avoid Student Loan Forgiveness Scams

The Takeaway

President Biden has announced transformative changes to federal student loan repayment. Every loan holder who earns up to $125,000 ($250,000 for married couples) will be eligible for $10,000 in repayment. People who had Pell Grants will be eligible for $20,000.

The Public Service Loan Forgiveness program is also being strengthened so that people who’ve held jobs that helped the public will be able to get relief from student loan repayment.

Student loan refinancing will allow you to seek a new interest rate and terms for the amount of federal loan debt you owe that is not affected by Biden’s cancellation plans. Interest rates have begun rising from historic lows and could see more increases in the coming months.