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Student Debt Forgiveness: The Comprehensive Guide

student debt forgiveness

It’s common these days to have a mountain of student debt. But if you qualify, you can get student debt forgiveness, either total or partial. You must, however: 

  • fulfill specific requirements, 
  • follow certain procedures, and 
  • fulfill certain requirements to be eligible for a given program.

This guide will cover everything you need to know about federal student loan debt forgiveness. 

Let’s dive right in!

1. Student Loan Debt

College degrees usually come with higher earnings. But unfortunately, American students accrue more debt for federal and private student loans while college costs are growing. And this is not good; student debt can prevent you from achieving other goals in life. 

It can even restrict your employment opportunities. But when you’re well-informed about the interest rates, the available loans, and the repayment schedules, you can make good decisions. And that can positively impact your long-term career and educational goals. 

So in the next section, we’ll go over the average student debt to help you keep informed. 

What Is The Average student debt? 

Both federal and private loans are included in the total student debt. But students or their parents (or guardians) can’t take out other student loans to pay for their education, such as 

  • home equity loans,
  • credit card debt, and 
  • other loans are not included in this debt.

Statistics On Total student debt

In the U.S., there was about $1.75 trillion in student debt as of March 2022. By March 2022, Americans had $141.5 billion in private student loans. Ninety-six percent of people who held student loans from 2021 onward had used them to fund their education.

student debt accounted for 36.6% of non-housing debt at the end of the first quarter of 2022.

Average student debt 

The typical federal student loan debt in 2022 was $37,358. A total of 43.4 million borrowers make up roughly $1.6 trillion in outstanding debt.

However, the amount that every borrower owes differs significantly. Debt varies depending on borrower characteristics, such as geography and level of education.

Statistics on Average Student Loan Debt

student debt forgiveness

The median debt amount among borrowers with unpaid student loans in 2021 ranged between $20,000 and $24,999. Graduates who received bachelor’s degrees in 2020 from private and public nonprofit four-year institutions with student debt owed, on average, $28,400.

In 2020, the average student debt for students who graduated with a bachelor’s degree from private and public nonprofit institutions ranged from $18,344 in Utah to $39,928 in New Hampshire.

Between 1996 and 2012, the average student loan debt for all graduates from nonprofit public and private institutions rose by 4% annually. Then, around 2016, it began to level off.

Private Student Loan Debt Statistics

Private loans are below a tenth of total student debt. But some trends are alarming. For example, interest rates on private loans can be double or triple those of federal loans. 

Nearly a third of students who rely on federal loans don’t borrow any. And more than half of those who use private loans don’t use them fully. Private student loans made up about 8% of total student debt as of March 2022.

In 2021, undergraduate studies accounted for around 88.7 percent of private loan debt. Graduate students carried about 11.3 percent of private student loan debt. Private student loan fixed interest rates can range from 3 to 13 percent.

Between March 2014 and March 2021, the amount of private student loan debt held by graduates and current students increased by 47%.

In 2015–2016, 30% of undergraduates with private student loans didn’t borrow any federal loans. And 53% of those with private student loans didn’t use the federal loan money available.

Federal student debt Statistics

Federal loans come in two types: subsidized and unsubsidized loans. When your loan is subsidized, the government will pay part or all of your debt interest if you prove a financial difficulty. 

Approximately 92 percent of all student debt is composed of federal loans. First-time, full-time students received federal student loans of 42% in 2018–19.

Federal student loans disbursed between July 2021 and July 2022 have the following interest rates:

  • undergraduates: 3.73 percent
  • Parents and graduate students who use direct PLUS loans will pay 6.28 percent of their income.
  • With Direct unsubsidized loans, graduate students’ interest rate is 5.28 percent.

What Happens To Unpaid student debt? 

Your overall financial situation may be seriously harmed if you don’t make payments on your private or federal student loans. Your loan defaults the day after a missed payment and remains in default until all past-due payments are made. Each missed payment could incur a late fee as well.

Federal student loans that are past due are not recognized as delinquent until they are more than 90 days past due. So you still have time to make the difference before it harms your credit scare. 

But private loans are different. Your lender may report it to the credit bureaus when it’s 30 days past due. 

History Of Late Payments Can Hurt Your Credit

If you have a history of late monthly payments on your credit report, it can be challenging to: 

  • obtaining credit cards, 
  • borrow money, or
  • rent an apartment, in some cases.

If you are approved for a loan, expect to pay higher interest rates.

270 Days Of Unpaid student debt

The consequences get worse the longer your loans are past due. For example, your direct federal loans default when they are more than 270 days past due.

Other loans experience this process considerably more quickly. For example, Federal Perkins loans can default immediately after a missed payment, but private student loans can do so after 120 days.

You can have lots of consequences when you get into default. In comparison to just a late payment, your credit will suffer significantly more damage. Wage garnishment and other legal actions are also possibilities.

How Can I Get Rid Of Student Loans Without Paying? 

student debt forgiveness

You can’t find a straightforward way to get rid of your loans without paying. However, you can get federal student loan debt forgiveness if you complete payments and fulfill other requirements.

The federal student loan debt forgiveness programs that are easiest to access are as follows:

Public Service Loan Forgiveness

The remaining balance of your loan debt is erased after 10 years of making monthly payments. But you must work and be employed by an acceptable government or nonprofit organization. 

It’s challenging to qualify and to ensure you don’t fall behind. First, you must submit an employment certification form for 10 years each year.

Teacher student debt forgiveness

You can have up to $17,500 of your loans forgiven. But you must work full-time for five years at a qualifying low-income school as a teacher to qualify.

Income-Driven Repayment Forgiveness

Your best option for managing payments is to choose the income-driven repayment plan. Your monthly payment is capped at a percentage of your take-home pay. And after 20 or 25 years, any outstanding debt is discharged.

Check out additional student debt forgiveness programs.

What Student Loans Are Forgiven? 

The only student loans eligible for student debt forgiveness are direct loans. Stafford loans are also eligible because direct loans replaced them in 2010. If you have additional federal loans, you might be able to combine them into a single direct consolidation loan to qualify.

Loans managed by student loan companies and private lenders not federally guaranteed are not eligible for forgiveness.

In 2020, federal loan borrowers who enrolled in for-profit colleges and applied for loan forgiveness because their school defrauded them had a setback. And that’s because President Trump vetoed a bipartisan resolution, overturning new regulations. 

That made it difficult for such borrowers to get federal student loan debt forgiveness.

2. Student Debt Forgiveness 

If President Biden gives the go-ahead, the U.S. Department of Education is reportedly ready to establish a program that will cancel all student loans quickly. Biden, on the other hand, remains unsure. 

Let’s go through how things are standing now. 

Are Student Loans Being Forgiven?

POLITICO reported that the Education Department has set up systems to undertake a comprehensive student debt forgiveness plan as soon as Biden gives the go-ahead. This includes a backup plan if Biden imposes income criteria on who is eligible for federal student loan debt forgiveness.

Here are some crucial elements:

Some borrowers may be eligible for automatic student debt forgiveness months after any announcement. But that would be possible if their income information is already with the Department of Education.

While the Department conducts a limited number of audits to verify borrowers’ information, borrowers who don’t have their income information with the Department may be able to rapidly self-certify their income on a straightforward application form.

Some Borrowers May Experience Lower Monthly Payments

Some borrowers on Standard, Extended, or Graduated repayment plans may experience lower monthly payments if the Department can repay the loan based on the remaining decreased balance. But that would be for those borrowers who still owe money after applying for student debt forgiveness.

If Biden approves such extensive student loan relief, the Education Department is prepared to implement loan forgiveness for almost any type of federal loan, including: 

  • Graduate PLUS loans, 
  • privately owned FFEL loans, and 
  • Parent PLUS loans. 

It’s not clear if consolidating your Direct loans would make you eligible.

What Qualifies You For student debt forgiveness? 

Each student debt forgiveness comes with its eligibility criteria. Let’s take loan forgiveness based on repayment plans, for example. 

These loan forgiveness programs are linked to your student loan repayment plan. So, after your repayment period, you’ll be qualified for student debt forgiveness if you are on one of these qualifying repayment plans.

Most students are eligible for federal student loan debt forgiveness in one of these methods. If you enroll in an eligible student loan repayment program, your outstanding loan balance will be forgiven after the program.

You Must Satisfy The Requirements

It’s vital to remember that these options for income-driven repayment plans have requirements that must be satisfied to qualify. For example, you won’t be eligible for student debt forgiveness if you have no outstanding balance at the end of the loan term.

It’s also vital to remember that the forgiven student loan amounts under these arrangements are sometimes regarded as taxable income. However, through December 31, 2025, President Biden made all student debt forgiveness and discharged federally tax-free.

Who Qualifies For The Government student debt forgiveness? 

student debt forgiveness

Everyone can qualify for federal student loan debt forgiveness if they meet the requirements. The government formerly limited the types of federal student loans and repayment plans eligible for the PSLF program.

However, regardless of the type of federal loan or repayment plan, you qualify for loan forgiveness. But only if you have made 10 years’ worth of payments while working in a qualifying job, such as a federal, state, or local government, a nonprofit organization, or the U.S. military. 

Previously ineligible loan payments will be considered, bringing some borrowers closer to loan forgiveness. It’s anticipated that this will be especially beneficial for borrowers of FFEL loans.

The government will permit military personnel to include time spent on active duty for ten years even if they cease payment during that period.

How Long Does It Take To Get Your Student Loans Forgiven? 

The type of debts you have and the repayment plan will determine how long it will take you to pay them off. So get in touch with your loan servicer if you are unsure of the plan you are on or the loan length.

Federal Student Loans 

According to Saving For College’s study, federal loan borrowers usually take 16 to 19 years to repay their loans. Borrowers anticipating debt-free with a Standard Repayment Plan in 10 years or fewer may be surprised by those figures. 

However, the 10% of a borrower’s discretionary income is too high for most borrowers to pay comfortably.

Most Borrowers Choose IDR Plans To Reduce Payments

Many borrowers choose income-driven repayment plans, which base payments on a smaller portion of their discretionary income, to minimize their payments. These programs lengthen the loan term while lowering the monthly cost. 

The plan’s repayment lengths might range from 20 to 25 years. The repayment period for borrowers who use Direct Consolidation, graduated repayment, or extended repayment plans may be up to 30 years.

Private Student Loans

Since the repayment options available for private loans are small, there is less variety in the repayment periods.

The length of time for repayment on private loans typically corresponds to the period provided by the lender. The loan term is something you choose when you apply for the loan. And until you refinance to a new loan, it should precisely be what you agreed to.

According to the Consumer Financial Protection Bureau, the repayment period for private student loans is typically between 10 and 25 years. Therefore, it can take much longer if you request a forbearance or deferment to fall behind on your payments.

Do Student Loans Go Away After 7 Years? 

Defaulted loans and student debt are typically removed from your credit report 7.5 years after the first missed payment. Keep in mind that the 7.5-year period applies to private student loans. 

Contrarily, if you default on a government-backed student loan, the amount of time it’ll be on your credit record is seven years from the default date. It could also be from the day the loan was transferred from the FFEL guarantor to the Education Department.

The 7-year rule has another significant exception: Perkins loans never mature while debt is outstanding. This indicates that even after 7.5 years, the trade line will still be visible if you took out a Perkins loan and later defaulted on it.

Paying out the loan or consolidating the student loans with another debt are the two ways to get a Perkins loan off your credit report.

Are Student Loans Forgiven After 10 Years? 

You’ll have to meet some requirements to have your student loans forgiven after 10 years. Some criteria are as follows:

  • You must be employed full-time by the government or a qualified nonprofit in a specific profession, such as public interest law, teaching, the military, firefighting, nursing, or religious activity.
  • You must have paid the whole sum within 15 days of the date the monthly installments are due over 10 years or 120 qualifying payments.
  • You can consolidate your federal loans into a single payment as part of the PSLF. But you must have a loan or loans in the federal direct loan program.
  • The PSLF doesn’t apply to some borrowers, such as partisan political organizations, labor unions, and for-profit businesses, such as for-profit government contractors.

Are Student Loans Forgiven After 20 Years? 

You can get your student loans forgiven after 20 years under a qualified income-driven repayment plan. Most of the time, you can get rid of your student loans if you stick to only the monthly payments. 

After 20 or 25 years of payments, all loans, like the spousal consolidation loans, are eligible for forgiveness, except those in default. To be eligible for repayment plan forgiveness, you may first need to consolidate any Perkins Loans or Parent PLUS Loans into a Direct Consolidation Loan.

Usually, the 20 years required for forgiveness don’t include periods of forbearance or deferment.

Student Debt Forgiveness After 20 Years Of Payments 

The below IDR Plans offer debt forgiveness for student loans after 20 years:

REPAYE Plan. This plan is for loans taken out during undergraduate studies. Graduate school borrowing is forgiven after 25 years of on-time loan payments.

PAYE Plan is for graduate and undergraduate students. Most borrowers of federal loans before 2011 are not eligible for this payment schedule.

IBR Plan works for new borrowers. After 25 years, borrowers who took out loans before 2011 are eligible for forgiveness.

ICR Plan is not eligible for forgiveness after 20 years of payments. After 25 years of repayment, FFEL and Direct Loans for undergraduate and graduate degrees are forgiven. You can use the 

Federal Student Aid Loan Simulator checks your payment amount and eligibility under each plan. Using the Loan Simulator can determine your eligibility and the number of payments under each plan.

Remember: your interest rate is unaffected by the payment schedule you select. Regardless of the plan you choose, your interest rate doesn’t change. Refinancing with a private lender is the only method to reduce your interest rate. 

It’s not for everyone to refinance because doing so results in you losing federal perks like income-based payments and loan forgiveness.

10 Vs. 20-Year Student Debt Forgiveness: Which Is Better? 

You should consider your options if you have federal loans and desire to get your student loans forgiven.

You must be on an IDR plan to qualify for the 10-year PSLF student debt forgiveness option. Additionally, you are enrolled in the 20-year option for IDR repayment of student loans. Both minimize your monthly payment, but one demands full-time employment with a recognized employer.

There is still hope if you decide against the 10-year student debt forgiveness plan because you don’t want to work in government or want to switch careers. Long-term PSLF eligibility restrictions don’t prevent you from other options.

After 20 years, you can continue on an IDR plan and receive debt forgiveness for student loans.

Is There A Better Option? 

Because you are making payments for a shorter period, 10-year student debt forgiveness is an excellent option from a time standpoint. In addition, because of the shorter term, you’ll pay less interest. 

You are also exempt from paying taxes on the amount that has been forgiven.

There are, however, some prerequisites for some careers that should be considered. It takes a significant commitment to have conditions tied to your employment. Your employment shouldn’t be based on the cancellation of college loans.

If a low-paying job in public service will make your life unpleasant, you’re better off seeking federal student loan debt forgiveness with an IDR plan after 20 years. 

You Can Earn More Outside The Public Service

If you don’t work in public service, you’ll probably be able to earn more money, making paying off your student debt simpler.

On the other hand, pursuing PSLF makes sense if you want to work in the public sector. If you continue on an income-driven plan, you can pursue long-term forgiveness even if you change your mind in the middle.

If after 20 years there is still a balance, just follow IDR, and you can get your loans erased. Save money for taxes, so you don’t face severe financial hardship. 

Why Some Borrowers Are Denied Student Debt Forgiveness

student debt forgiveness

1. The Borrowers Job Doesn’t Qualify For Debt Forgiveness For Student Loans 

Loan forgiveness isn’t available to borrowers who only work for profit-oriented companies. The state, federal, county, or local government, including 501(c)(3) tax-exempt charitable organizations, must be the borrower’s place of employment full-time. 

If a government institution employs a borrower, they must do it directly, without a government contractor.

2. The Loan Payments Don’t Qualify. 

Federal student loan debt forgiveness doesn’t apply to payments or employment made before October 1, 2007. In addition, the loan forgiveness isn’t retroactive. The qualifying payments must be made when you are employed full-time in a qualifying position.

The loan payments had to be made within 15 days of the due date. Late payments are not accepted to qualify. Part payments don’t count, and you must not be in default on any federal loans.

Also, payments you make during forbearance or deferment don’t count. 

With a few exceptions, such as lump sum payments given in connection with the Peace Corps, AmeriCorps, or the U.S. Armed Forces, they are counted as a single payment.

3. Some Student Loans Don’t Qualify.

You should use the right loan program for your student loans, or you won’t qualify. The Direct Loan falls under this category.

However, the FFELP and the Perkins Loan don’t qualify for forgiveness. But you can be eligible for these loans by consolidating them into a Direct Consolidation Loan. 

The clock on loan forgiveness is reset when consolidating federal loans.

Strategies For Student Debt Forgiveness 

1. Make Sure You Recertify On Time. 

Every year, you must confirm your discretionary income by the due date. To verify your recertification date, contact your loan servicer.

2. Monitor Your Monthly Payments. 

Keep your records even though your servicer is expected to keep track of how many qualifying payments you’ve made. Over the next 20 years, your servicer may change, and mistakes may occur.

To verify your eligibility, you should have your document history on hand.

3. Change Your Repayment Plans

If your student loans are only from undergraduate studies and you are currently enrolled in the IBR or ICR Plan, transferring to the REPAYE Plan will allow you to apply for forgiveness five years sooner.

4. Don’t Consolidate.

Consolidating into a Direct Loan Program will reset your number of payments to zero if you have FFEL Loans and have participated in the IBR or ICR Plans. However, initial payments can’t be credited in any form.

3. Conclusion

Regardless of your path, your college debt is difficult to bear. Student debt forgiveness is no exception. It’s time-consuming and, in the end, may not be worthwhile. And Changes in forgiveness policies are susceptible to the whims of politicians.

Requirements, conditions, and limitations apply to every federal student debt forgiveness program. To be eligible, you must strictly adhere to the guidelines. After years of payments, debt forgiveness for student loans may be the most enticing option if you’ve made the right life and professional decisions. And you expect your remaining student debt to be wiped at the end of those years.