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Student Loan Forgiveness: Know the Eligibility Criteria & Process

by Abhishek Singh
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Student Loan forgiveness refers to the elimination or “forgiveness” of a loan (or a portion of a debt) that relieves the borrower of the need to repay it. Although any student debt can be forgiven theoretically, in fact, student loan forgiveness is mostly limited to government-issued or government-backed loans in the United States, which account for 92% of all student loans in the country.

What does mean of Student Loan Forgiveness?

Borrowers who receive student loan forgiveness are relieved of the requirement to repay a portion or all of their federal student loan debt. These borrowers borrowed money to pay for their postsecondary education. Some types of loans are eligible for forgiveness, but only those in specified public service, educational, or military professions are eligible.

The Student Loan forgiveness program: What Loans are eligible?

Only direct loans issued through the Federal government’s budget are allowed to be forgiven. Stafford loans which were replaced by direct loans in the year 2010, are still qualified.

If you’re a holder of other types Federal loans you may be able to merge them into one direct consolidation loan that could give you access to other option for income-driven repayment plans. Non-federal loans (those managed by private loan companies and lenders) are not eligible to be forgiven.

In 2020, borrowers who had federal loans, who went to private colleges and requested loan forgiveness because the school they attended defrauded them or violated certain regulations were hit with by a setback after then-President Trump rejected the bipartisan resolution that would have repealed new rules that made it more difficult for them to get loan forgiveness.

As of August. 23rd, 2022 during the Biden administration under the Biden administration, The United States Department of Education has authorised $32 billion in Student loan relief for more than 1.6 million borrower, many of them victims of fraud committed by for-profit colleges.

Income-Driven Repayment Plan Forgiveness

In the case of federal loans for students, the normal repayment term of 10 years. If a repayment term of 10 years renders your monthly payments inaccessible then you may opt to join one of the Income-Driven Repayment (IDR) program. Income-driven programs spread out instalments over twenty or even 25 years.

In the end, assuming you’ve completed all of the qualifying payments, whatever amount remains on the loan will be forgiven. The amount of payments is based on the household’s income and size. They generally are limited to 10 15%, 10 percent, or 20% of your discretionary earnings, dependent on the plan. Here are the four different types of IDR plans that are offered through the U.S.

Department of Education In addition to the repayment period and monthly instalments of each plan: The revised Plan for Pay as You Earn (REPAYE) Plan The repayment timeframe in this plan is for 20 years (if all loans made under the plan were repaid to study at an undergraduate level) and the longer period of 25 years (if any loans in the plan were made to professional or graduate study). Monthly payments typically equal 10 percent of your discretionary earnings.

Plan for Pay-As-You Earn (PAYE) Plan The period of repayment in this scheme is 20 years. Monthly payments are usually 10 percent of your discretionary earnings, however they can’t surpass the 10 year Standard Repayment Plan amount. The Income-Based Repayment (IBR) plan If you didn’t had an outstanding debt at the time you received direct loans or a Federal Family Education Loan (FFEL) within or after July 1st, 2014, you are eligible for this plan.

The repayment duration for the plan will be 20 years and the monthly instalments are generally 10 percent of your discretionary earnings. In contrast, if you possess an unpaid balance at the time you received either a direct loan or FFEL within or after July 1, 2014, the duration of repayment for the plan will be 25 years and the monthly payment is usually 15 percent of your discretionary earnings.

In both cases, the monthly payments are not allowed to exceed the 10 years Standard Repayment Plan amount. Plan for Income-Contingent Repayment (ICR) plan The repayment time frame in this particular plan runs for 25 years. The monthly payments are 20 percent of your discretionary income (or the same amount of the repayment plan that has the option of a fixed 12 year payment (adjusted in accordance with your income) or the lesser amount, whichever is less.

An IDR plan is an excellent option for those working in areas with low salaries and huge amount of student loan debt. If you’re thinking of the possibility of an IDR plan, you must remember that eligibility differs among plans, with certain kinds of federal loans not eligible for repayment under all plans, but only one. Furthermore, you’ll have to each year “re certify” your income and family size even if neither has changed from one year to the next.

How do I apply for Student Loan forgiveness program?

The process of applying for an IDR will require you to complete an Income-Driven Plan Request. This is available via the internet or an official paper form and the latter you need to ask your lender. You may choose to select the specific IDR program by name, or request that your loan provider put you on the income-driven plan you are eligible for with the lowest monthly instalment amount.

CARES Act Automatic Federal Student Loan Forbearance

If you are a holder of a student loan issued through the U.S. Department of Education The government has given an automatic forbearance for this loan as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. On August. 24th, 2022 The Biden administration extended period of forbearance and allowed loans to remain in forbearance until. 31st 2022.

From March 13th, 2020 until December. 31st 2022, there will be no interest, and you are not required to pay anything. There will be no late fees in the event that you do not pay in this time. You’ll be aware of this benefit when you see the interest rate at 0% when you sign into your account for student loans.

In March of 2021 The Department of Education extended this benefit to private owned loans in the FFEL Program.

In normal circumstances it is not possible to make progress towards the forgiveness of loans in the course of the period of forbearance. However, pursuant to CARES Act, you can. You’ll get credit towards the income-driven repayment forgiveness (PSLF) or PSLF for the amount that you typically would have made in this time.

The Bottom Line

It’s true that the burden of college debt can be quite overwhelming and the process of granting student loan forgiveness isn’t easy to obtain regardless of which option you take. It takes a long time and in the end, might not be worth it. You are at the at the mercy of powerful servicers for student loans. You are exposed to ever-changing political winds which seek to modify forgiveness programs.

The programs for forgiveness of student loans are subject to specific requirements, conditions and restrictions. It is essential to follow the rules to the letter to be eligible. If you’re already struggling debt, then forgiveness could be the best option to get to get out, particularly if you’ve made career and life choices with the hope of having the remaining debt from your student loan erased after years of paying.

It’s not the only option to deal with out of control student loan debt However, it is a possibility. In the most dire of circumstances, getting the student loan debts wiped out through bankruptcy might be an alternative.Student loan forgiveness might be a welcomed possibility–offering some relief to student borrowers toward the end of their repayment period–but its future is uncertain. Students should be cautious about getting into debt that is more than they can afford in the hope that a large portion of it is forgiven.

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