About 44 million Americans are saddled with student loan debt, which has risen to $1.7 trillion. This issue will continue to plague many for decades to come. Fortunately, there is a way to get rid of student loan debt: student loan forgiveness. If you are one of the millions of Americans still suffering from the burden of student debt, keep reading! This article will discuss what it means to forgive student loans and how it can be earned.
What Does It Mean to Forgive Student Loans?
Student loan forgiveness relieves you of the responsibility of repaying a portion or more of the federal student loan debt that was lent to fund your post-secondary education.
While debt forgiveness, cancellation, and discharge may sound similar, they refer to different things. Forgiveness or cancellation refers to when you are no longer expected to make payments on your debts due to your employment. On the other hand, discharge refers to when you are no longer obligated to make payments on your loans due to a total and permanent disability or the closure of the school where you got your loans.
Student loan forgiveness is the most effective way to get rid of student loan debt, but it is not easy to earn and only applies to federal direct loans.
How Do You Earn Student Loan Forgiveness?
Loan forgiveness is available in several ways. Serving in the public sector or having an income-contingent repayment plan are the two main ways to receive student loan forgiveness, each with its own set of conditions and restrictions.
Public Service Loan Forgiveness
If you work in public service, whether for the government or a nonprofit organization, the Public Service Loan Forgiveness Program (PSLF) might be right for you. Those working in nursing, government, police, fire departments, and social work are all possible candidates. Other forms of voluntary work, military service, or medical practice can also allow you to have all or part of your loans forgiven.
A requirement of 120 qualifying payments needs to be made to be eligible for loan forgiveness. To make a qualifying payment, you must pay the loans' minimum charge on time while employed by an authorized organization, which is typically the federal, state, or local government or a tax-exempt charitable agency. As such, you will be considered eligible after ten years on the job and ten years of monthly payments.
Repayment Plans With Loan Forgiveness
You will still be eligible for a part of your student loans to be forgiven if you are not employed in the public sector, but the process may be longer. Income-driven repayment programs intended to assist graduates who struggle to make payments during the normal 10-year repayment period often allow for certain debt forgiveness over a specific time frame. Among these repayment plans are Income-Based Repayment (IBR), Income-Contingent Repayment, Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE).
Disadvantages of Student Loan Forgiveness
The IRS enjoys taxing everything, including forgiven debt. Loan forgiveness provided by the government is tax-free. Any remaining balance eradicated by an income-driven repayment plan, on the other hand, is taxable and can be classified as income. As such, it's essential to plan ahead of time for the looming tax bill. Consider opening a separate savings account for your money.
Student loan debt can be crippling, and student loan repayment is difficult to achieve no matter which path you take. It takes a long time to pay off and may not be worth it in the end. One way to work around this burden is through student loan forgiveness. Student loan forgiveness frees you from the obligation to repay a part or more of the federal student loan debt used to finance your post-secondary education.
Every student loan repayment program has its own set of terms, standards, and restrictions. To be eligible, you need to meet all the requirements. If you're already in over your head, forgiveness may be the most attractive option to get rid of your student debt.