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Student loan forgiveness programs are designed to aid borrowers who have too much debt. Usually, those eligible are approved due to their work, professional position or capacity for timely repayment of their loans.
But if the Supreme Court sides with lower courts in Republican-led states that have blocked President Biden’s plan, it could stall progress on this front.
1. Income-Driven Repayment Plans
Income-driven repayment plans enable borrowers to make student loan payments that are determined by their discretionary income. Usually, these are the lowest monthly payment options available for a particular loan type, and they also permit adjustments in payments due to job loss or increased family size.
If you are currently enrolled in an income-driven repayment plan, it is critical to recertify your monthly payments and other financial information annually. Missing this deadline could result in increased payments as well as any accrued but unpaid interest being capitalized or added to the principal of your loans.
Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE) are the two most popular income-driven repayment plans. Both of these options calculate a borrower’s monthly payment amount based on their income, total federal student loan balance, and family size.
Income-driven repayment plans may be more affordable than standard repayment plans, but they may not be suitable for all borrowers. Those with low incomes and those who expect to remain in a low-paying career are usually better served by opting for the standard repayment plan.
Another potential drawback of repayment plans is that they may cause borrowers to prioritize paying off their student loans instead of other important financial goals, which could negatively affect their credit scores and future financial plans.
These plans may be suitable for those with large student loan debts who cannot meet the repayment obligations of other student loan repayment plans. The monthly payment amount is limited to a certain percentage of discretionary income – that is, an individual’s total adjusted gross income less 150% of the Federal poverty line for their state of residence and family size.
However, some borrowers who anticipate a significant rise in income after enrolling in an income-driven repayment plan might want to consider another option. One such program is Public Service Loan Forgiveness, which forgives student loans for those working full time at a public service organization.
2. Public Service Loan Forgiveness
If you work in the public or nonprofit sector, you may qualify for student loan forgiveness under the Public Service Loan Forgiveness program. This type of relief can save you thousands of dollars and eliminate years from your repayment timeline. Furthermore, this program does not count any discharged balance from your loans as income for federal tax purposes.
To maximize the benefits of this program, make sure you’re making payments on a qualifying repayment plan. Typically, this means switching from the standard 10-year repayment plan to an income-driven one.
Another way to guarantee you’re eligible for PSLF is to fill out a public service employment certification form annually or when changing employers. This helps the Department of Education confirm that you’re making enough qualified payments.
Recently, the Department of Education announced changes to the Public Service Loan Forgiveness program that will make it easier for more borrowers to receive forgiveness. These adjustments include streamlining which payments count and offering more leniency if borrowers fall behind on payments.
Prior to the new rules, borrowers who were late by even a penny could lose eligibility for PSLF forgiveness. Now, however, those who make more than 120 payments will still qualify even if they’re one payment short.
Additionally, the Department of Education is allowing months served in military service to count towards meeting the 120-payment criteria. This will benefit borrowers who put their student loans into deferment or forbearance while on active duty.
Though these changes represent a positive step toward an improved PSLF program, you should still take extra care when submitting employment certification forms and recording all qualifying payments accurately. A recent study revealed that borrowers who weren’t timely with their payments or made only partial payments had the most difficulty receiving PSLF benefits.
To find out more about this program, you can access its PSLF Help Tool or download a form for hand-filling on the Department of Education’s website.
3. Consolidation Loans
Consolidating loans can be an excellent way to reduce student loan payments and organize your finances. But before making a final decision, it is essential to comprehend both the advantages and drawbacks of consolidation.
Consolidating loans offers several key advantages, including a reduced monthly payment, lower interest rate and extended repayment terms. Furthermore, you may qualify for loan forgiveness and other federal loan benefits.
Consolidation involves combining your existing loans into one new loan with either the U.S. Department of Education or a private lender, serving as either the loan servicer and processor for this new arrangement.
This is an ideal option for borrowers with multiple federal loans and difficulty repaying them. Furthermore, it helps prevent default and a negative credit rating.
Borrowers also have the option to consolidate their loans under an income-driven repayment plan, according to financial aid expert Dan Claffey of EdMD, a college admissions and financial aid consulting firm. This can help manage debt more effectively and reduce monthly payments accordingly, according to Claffey’s advice.
Additionally, if you consolidate loans under the Direct Loan Program, you may qualify for various student loan forgiveness programs like Public Service Loan Forgiveness (PSLF). This can help you pay off your loans more quickly and affordably.
If you wish to consolidate your federal student loans, the initial step is completing a new application. Be sure to provide information about your existing loans such as their balances and interest rates.
Once you submit the application, your loan servicer will determine which loans qualify for consolidation and issue a consolidated loan with the balance of existing federal student loans being paid off as part of the deal. The fixed interest rate on this new loan will be determined by taking into account the weighted average of all combined interest rates rounded up to one-eighth of 1 percent.
You have the option to extend your loan repayment term up to 30 years, which will lower your monthly payment significantly. This may be a suitable choice for graduates or students who plan to work in the future but don’t want to have to worry about paying off their loans over an extended period.
4. Military Service
If you’re a service member or veteran and looking to pay off your student loans, there are some programs that could assist. These include Public Service Loan Forgiveness (PSLF), total and permanent disability discharge, and more.
There are military-specific repayment assistance programs that can help you pay off your loans faster and save you money on interest fees. Some of these options are open to both members and spouses, while others are only available to certain professions.
Doctors and other healthcare professionals can apply for the Health Professionals Loan Repayment Program, which pays a portion of your student loan balance each year up to $40,000 annually. Uniformed attorneys also qualify for the Judge Advocate Student Loan Repayment Program which offers up to $50,000 annually.
In addition to these options, many service members can take advantage of the Servicemembers Civil Relief Act (SCRA), which reduces interest rates on most debt borrowers before entering the military from 10 percent to six percent during their period of service and one year after. This makes the monthly payment much more manageable.
Another option is to refinance your student loans. This may be an advantageous choice for students with good credit and employment history who can take advantage of lower interest rates or reduced monthly payments on existing loans.
However, refinancing can restrict your access to federal programs like PSLF and income-driven repayment plans. Furthermore, it will likely eliminate many military-specific loan repayment assistance programs.
Before service members who qualify for these programs can enlist, it’s essential to confirm with the specific program you qualify for. Since these options differ from what civilian borrowers can access, speak with your branch of service or benefits/education coordinator for more details.
Veterans with 100% disabilities may qualify for the Veterans Total and Permanent Disability Discharge (TPD). Under this program, most federal student loans will be cancelled if you meet certain criteria such as serving on active duty for five years and suffering a service-related disability.
