Understanding What Student Loan Forgiveness Really Is

A stack of books next to a chalkboard with the words 'student loan forgiveness', symbolizing loan forgiveness and financial relief for students and graduates.

Many student loan borrowers feel helpless in the face of tens of thousands of dollars of student loan debt. There is popular support among them for student loan forgiveness, but there are misconceptions about these programs that need to be cleared up.

A recent report from LendEDU found that nearly half of all college students believe their loans will be forgiven.

Student loan forgiveness doesn’t mean the government is going to suddenly waive borrowers’ debts. “Forgiveness” eventually satisfies part of the debt, but only after one makes many regular payments in the meantime.

There are scams online playing on this misunderstanding. Borrowers should be cautious about working with anyone who promises someone’s debts will be completely forgiven. Legitimate programs offer relief to certain kinds of borrowers under specific conditions. You must be eligible, qualify, and enrolled to participate.

The most common loan forgiveness programs include:

  • Public Service Loan Forgiveness is offered to people who work in public service and make 120 consecutive monthly payments—that’s 10 years of on-time, in-full payments before any debt is forgiven.
  • The Teacher Loan Forgiveness Program helps those who teach in low-income areas, but only after five years in their position.
  • Military members have forgiveness programs unique to each branch of the military—soldiers and service members should contact their loan servicer to learn more.
  • The Income-Based Repayment Plan does offer loan forgiveness after 25 years of regular payments, and those payments can be adjusted based on the borrower’s income.
  • Pay As You Earn will allow the remaining balance to be forgiven after 20 years of payments; only certain borrowers will qualify.

As you can see, these options involve 10 to 25 years of payments before any balances are forgiven. In some cases, missing a payment can reset the clock on this repayment period, though in most cases the end date is only delayed by a missed payment. We cannot make any guarantees about the future availability of these programs.

There can be tax consequences to loan forgiveness as well. Certain canceled debt is taxable as income, but each situation is unique, so talk to a loan counselor about how you should prepare for a sudden tax burden due to loan forgiveness.

While the qualifications are rigorous, and eligibility is limited, these kinds of forgiveness programs do offer great relief. They make it more affordable to repay your debt and reward you with forgiveness after years of regular payments.

These programs aren’t for everyone, though. They are meant for those with lower incomes, and anyone who offers to get you access to a loan forgiveness program for a fee should be regarded with suspicion.

And if you don’t qualify for any loan forgiveness programs, you can still consider other options, like Graduated Repayment, Extended Repayment, federal loan consolidation, Income-Contingent Repayment, etc. Whether it’s a different kind of repayment plan, postponed repayment, or some other program, there may be many relief options that haven’t occurred to you.

Just remember, student loan forgiveness isn’t a magic wand that’s about to come along and wipe away your debts—those who access that relief will have to earn it through years of timely loan payments.

Article written by
Melinda Opperman
Melinda Opperman is an exceptional educator who lives and breathes the creation and implementation of innovative ways to motivate and educate community members and students about financial literacy. Melinda joined credit.org in 2003 and has over two decades of experience in the industry.

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