In the wake of the Covid-19 pandemic, student loan borrowers have asked the same question “How can I cancel my student loan debt?” Coronavirus has changed the economic landscape, and this includes student loans. If you are struggling to pay off student loans, there are several options for student loan forgiveness. It’s important to understand each option, weigh the advantages and disadvantages and determine if student loan forgiveness is the right choice for you. Importantly, for most borrowers, no program simply will cancel your student loan debt. In most cases, there are requirements to meet to receive student loan forgiveness.
In recent months, Congress has proposed to cancel student loan debt. For example, Sen. Bernie Sanders (I-VT) proposed to cancel all $1.6 trillion of student loan debt, including federal and private student loans. House Democrats proposed cancelling $30,000 of student loan debt, while Senate Democrats proposed $10,000 of student loan forgiveness. Last month, Sen. Elizabeth Warren (D-MA) and Senate Minority Chuck Schumer (D-NY) proposed that President Donald Trump be granted authority to cancel $50,000 of student loan debt. Despite these proposals, Congress has not passed comprehensive student loan forgiveness this year. That said, there are existing programs that help provide student loan relief to borrowers.
Here is an overview of some of the most popular ways to get student loan forgiveness:
1. Public Service Loan Forgiveness
Congress created the Public Service Loan Forgiveness program in 2007 to help student loan borrowers receive federal student loan forgiveness. To qualify, borrowers must meet several requirements, including full-time work of at least 30 hours per week for a qualified non-profit or public service employer. To receive public service loan forgiveness, you must make 120 monthly payments on-time and in-full. Further, you must be enrolled in an income-driven repayment plan and make a majority of your monthly payments while enrolled in an income-driven repayment plan. It’s important to note that you can receive forgiveness only for federal student loans, not private student loans.
2. Income-Driven Repayment Plans
Income-driven repayment plans are another excellent opportunity to receive federal student loan forgiveness. You can enroll in an income-driven repayment through your student loan servicer and these plans are available for federal student loans only. Income-driven repayment plans are based on your discretionary income, family size and state of residence. There are four main types of income-driven repayment plans:
With income-driven repayment, your monthly student loan payment is equal to 10-20% of your monthly discretionary income. It’s possible for your monthly payment to be as low as $0. After 20 years (undergraduate student loans) or 25 years (graduate student loans), you can receive federal student loan forgiveness. However, you may owe income taxes on the amount of student loan forgiveness you receive. For example, if you student loan balance is $25,000 after 20 years of paying college loans, then you may owe income tax on your $25,000 student loan balance.
3. Teacher Loan Forgiveness
Teachers can seek federal student loan forgiveness through the Public Service Loan Forgiveness, or they can pursue Teacher Loan Forgiveness. There are many requirements to meet, including teaching full-time for five complete and consecutive years. In contrast, public service loan forgiveness doesn’t require consecutive monthly payments. For Teacher Loan Forgiveness, you must teach in a low-income school or educational service agency. While public service loan forgiveness can cancel your student loan debt, Teacher Loan Forgiveness only cancels up to $17,500 for subsidized and unsubsidized Direct and Stafford Loans. If you have Parent PLUS Loans, for example, you should consolidate these student loans into a Direct Consolidation Loan before making student loan payments that count toward the 120 monthly payments while enrolled in an income-driven repayment plan. You can contact your student loan servicer to start the process.
For many student loan borrowers, bankruptcy is a last resort. Most borrowers believe that you can’t discharge student loans in bankruptcy, even though you can discharge mortgage debt or credit card debt. However, in specific circumstances, some borrowers may qualify for bankruptcy based on economic hardship and successfully can cancel student loan debt. While the legal standard to discharge student loans in bankruptcy varies by circuit court, the most common legal standard is known as the Brunner Test. To discharge student loans under the Brunner Test, a student loan borrower must show:
- A financial hardship
- The hardship is likely to continue for the duration of the loan term; and
- They made a good faith attempt to pay off the student loan (even if the borrower does not pay off the loan)
5. Total and Permanent Disability
If you are totally and permanently disabled, you can cancel your federal student loan debt through the federal government with a Total and Permanent Disability (TPD) Discharge. To apply, call 888-303-7818 or email DisabilityInformation@Nelnet.net.Nelnet is the student loan servicer that manages Total and Permanent Disability for federal student loans on behalf of the U.S. Department of Education. For private student loans, contact your lender or student loan servicer to inquire whether it’s possible to obtain a total and permanent disability discharge.
There are many different ways to receive student loan forgiveness and cancel student loan debt. The first step is to learn more about student loan forgiveness options and then contact your student loan servicer once you’re ready to proceed. If you don’t want to wait several years for student loan forgiveness, you could refinance student loans now, including both private student loans and federal student loans, to get a lower interest rate and pay off student loans faster.