What Is Student Loan Forgiveness and Student Loan Repayments?

Student loan forgiveness is something almost every federal student loan borrower can qualify for, it is written into U.S. law. Where things get complicated is that there are many forgiveness and repayment options that are difficult to understand, leading people to believe that because they didn’t qualify for one loan forgiveness option that student loan forgiveness at large does not exist. There are several kinds of forgiveness available through different programs. We’ll show you here what each of these are so you know which option applies to your current situation. 

While student loan forgiveness will dramatically reduce the cost of your loans, navigating it on your own without making mistakes that disqualify you for forgiveness is nearly impossible as evidenced by recent data from the National Consumer Law Center that showed that out of the 2 million borrowers who could have qualified for student loan forgiveness via IDR (Income Driven Repayment) plans, only 32 individuals actually received total student loan forgiveness. 

Student Loan Forgiveness Qualifications

But don’t give up hope on forgiveness. We’ll show you how you can virtually guarantee that you will qualify for forgiveness when you make your final qualifying payment and reduce the burden of the yearly paperwork as well. 

The other thing to keep in mind is that when your loans are forgiven, according to current law the forgiven debt will be treated as taxable income. Now in March of 2021 President Biden put a pause on the forgiven debt being taxable for all debt forgiven until 2025. Meaning, for those borrowers whose debt is forgiven during Biden’s first term in presidency, the debt is entirely forgiven with no tax implication. 

However eliminating the tax burden associated with the forgiven debt is an executive order and is likely to change provided the economy recovers from the COVID-19 epidemic, leaving the vast majority of borrowers on the hook with a tax bill that will be due at the time of the forgiveness. That being said, it makes sense to have a secure plan for saving for this event, regardless of what happens by that time, you’ll be grateful for the advanced savings plan. When done right this can further reduce the cost of your student loan repayment. For example if you build a savings account or investment account for this period of time, compound interest can mean that you end up with a large nest egg at the end of your loan term instead of chipping away at a forgivable debt. 

If by the time your debt forgiveness comes due and laws have changed so that there is no tax implication, your future self will thank you merrily for the large endowment of savings now available to you.

Student Loan Forgiveness and Repayment Options

So what are the different kinds of student loan forgiveness available?

Income Driven Repayment

The most popular programs that offer student loan forgiveness are the Income Driven Repayment (IDR) plans. These programs are overall the best choices for most borrowers that qualify for them. That’s because an IDR program designates payment amounts that are a certain percentage of your income and family size, with many people qualifying for as low as a $0 payment. Once you have made payments for 20-25 years, depending on the specific IDR you’ve chosen, the total loan balance is forgiven and treated as taxable income. In addition to the IDR program, certain repayment options have additional subsidies. For example, the RePAYE Plan includes a 50% interest subsidy on any negative amortized interest, and reduces the repayment window on undergrad loans, “provided you don’t have any graduate loans” by 5 years. Read our blog article for student loan repayment tips

Public Service Loan Forgiveness

Another program that offers student loan forgiveness is Public Service Loan Forgiveness. You qualify for this program if you can work for the federal, city or state government or a qualified 501(c)3 non profit and are in a qualified repayment plan and have made 120 total qualified payments. This includes vocations such as nursing, medical doctors, and public school teaching and many others. For example, you could technically have a million dollars in federal student debt and work as a janitor at a public school and after 120 qualified payments, your debt would be forgiven without any tax implication. 

Working with Student Loan Tutor

So now that you understand the different options for federal student loan forgiveness, what can you do to improve your odds of actually realizing the forgiveness from less than a 1% gamble to near 100% certainty? Well the answer is something that will probably surprise you because it’s never talked about in the media or from your servicer. The answer is working with someone who is compensated to have your best interest in mind. Similar to a tax accountant or an attorney, you want to work with people who have a vested interest in your outcome. 

You could hire a student loan attorney. But they’re expensive and often simply advise, and not handle all of the document preparation and servicer follow up and auditing. 

On the other hand you could become a client of Student Loan Tutor. As far as we know we have worked with more borrowers on a paid for service basis for a longer period of time than any other organization. We not only help you figure out which forgiveness program and repayment plan is best for you now, but also revisit your strategy year over year for the life of your loan. We also do all of the paperwork and servicer follow up to make sure you never miss a payment or deadline which can disqualify you from your chosen repayment program, cause interest to capitalize, or cause collections to come knocking. 

If you’d like to find out if Student Loan Tutor is a good fit for you, please schedule a free evaluation with us.

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