Student Loan Forgiveness: How to Take Advantage of Revised Federal Programs

The US Education Department is hoping to make it easier for people with student loans to have some of their debt forgiven.

Last week, the department announced changes designed to speed up the loan forgiveness process under existing programs that borrowers complain have been complicated and difficult to navigate.

Specifically, the Education Department said it plans to give millions of borrowers retroactive credit toward loan forgiveness under a program that ties student loan payments to income. The announcement joins a similar initiative, announced last October, that aims to make it easier for public service employees to qualify for loan forgiveness.

It comes after President Biden early this month extended to Aug. 31 a pandemic-related pause on payments.

Though millions of borrowers have enrolled in these types of federal debt forgiveness programs, relatively few have managed to receive relief. To take advantage of the changes, some borrowers must switch loan repayment plans or file new paperwork.

Even those who are able to pursue loan forgiveness might not want to. Borrowers should first consider whether the loan forgiveness programs make sense for their situation, since it can extend the life of their loans.

“People get so caught up in the word forgiveness, but it is not always in a borrower’s interest to pursue it,” said Betsy Mayotte, president of the nonprofit Institute of Student Loan Advisors, who helps borrowers with student loans.

Here’s what you need to know about the new rules.

Does it make sense to pursue loan forgiveness?

It depends on factors including your income and debt.

To take advantage of the loan forgiveness programs, borrowers generally move from a default repayment option to an income-driven repayment plan. In contrast to the default option, which requires borrowers to make fixed monthly payments for up to 10 years, income-driven plans set student-loan payments at 10% to 20% of a borrower’s annual discretionary income, an amount determined by a formula that includes the borrower’s income and family size.

Income-driven repayment programs tend to be most beneficial to those with debt in excess of their income — a threshold at which borrowers are likely to eventually see some of their loan balances forgiven, said Mark Kantrowitz, a student-loan expert.

Someone who owes about $ 60,000 and earns $ 80,000 would likely pay off their loan before the 20 years it often takes to qualify for loan forgiveness under an income-driven repayment plan, Mr. Kantrowitz said.

In contrast, a borrower who has been making payments for nearly 20 years may immediately qualify for loan forgiveness, Ms. Mayotte said.

Navient’s recent $ 1.7 billion settlement will erase student debt for about 66,000 borrowers. WSJ’s Josh Mitchell breaks down the settlement and explains which borrowers will receive debt relief. Photo: Storyblocks

Who qualifies for student loan forgiveness?

There are two ways people with federal student loans can seek partial debt forgiveness.

Under the federal government Public Service Loan Forgiveness program, eligible borrowers can have their remaining balances forgiven tax-free after 10 years of payments. This program is available only to teachers, law-enforcement employees, doctors, nurses, and others who work full-time for at least a decade for certain types of nonprofits or government agencies.

The loan forgiveness program is less generous for people who do not work in public-service jobs.

To qualify, these borrowers must repay their loans for 20 to 25 years — the term depends on which repayment plan they select. In addition, they must pay income tax on any debt that is canceled, although federal tax has been waived for those who qualify for debt forgiveness between Dec. 31, 2020, and Jan. 1, 2026.

For both programs, borrowers should use an income-driven repayment plan. The Education Department’s online Loan Simulator helps borrowers compare how much they would pay under income-driven repayment plans versus the default option.

How does the Education Department’s latest announcement change the forgiveness process?

It expands opportunities to get credit toward loan forgiveness.

The department will now allow some borrowers who have been in forbearance, a status that temporarily postpones loan repayments as interest accrues, to apply time in forbearance toward the 10 to 25 years of repayments required for loan forgiveness.

To qualify, a borrower must have been in forbearance either for 12 or more consecutive months or for 36 or more months total.

Those with shorter forbearance stints who feel their loan servicer “steered” them toward forbearance can have their case reviewed for possible credit toward loan forgiveness by filing a complaintthe Education Department says.

Those who are in line to get debt forgiveness after either 20 or 25 years can also get credit for some previous periods of deferment.

How do you apply for additional credit toward loan forgiveness?

Borrowers already enrolled in income-driven repayment plans will automatically receive credit for forbearances or deferments that meet the requirements, such as having been in forbearance either for 12 or more consecutive months or for 36 or more months total, the Education Department said.

Borrowers in other repayment plans can also get this credit. To get forgiveness, though, they must switch to an income-driven repayment plan when student loan payments resume.

For those who switch to an income-driven plan, past payments count toward loan forgiveness, said Mr. Kantrowitz. The 2½ years in which student loan payments have been suspended due to the pandemic also count, he added.

Borrowers enrolled in the Public Service Loan Forgiveness program may also have to take steps under a temporary program that expires after Oct. 31.

To qualify for this loan forgiveness program, borrowers in public service jobs must either be in an income-driven repayment plan or a 10-year standard plan. Some who thought they were on track for forgiveness have discovered they enrolled in a repayment plan that does not qualify, such as an extended repayment plan with a longer term than 10 years.

Under a temporary program announced last year, those who have not already done so should file a Public Service Loan Forgiveness Form at by Oct. 31. This allows them to have past payments count toward Public Service Loan Forgiveness, no matter which repayment plan they used. They can also get credit for late and partial payments, Mr. Kantrowitz said.

If after those adjustments the borrower does not have the 10 years’ worth of monthly payments needed for debt forgiveness, he or she should switch to an income-driven repayment plan.

Some borrowers need to take an extra step.

Federal loans issued under the Federal Family Education Loan program, which was discontinued in 2010, do not qualify for the Public Service Loan Forgiveness program. But these loans can be consolidated under the Federal Direct loan program to qualify — and past payments can count toward loan forgiveness for those who consolidate and file necessary forms by Oct. 31.

The new relief initiatives offer another reason to consolidate, said Ms. Mayotte. They allow a borrower who consolidates with, say, eight years of payments on one loan and four years of payments on another to receive eight years of credit toward forgiveness on the new consolidated loan, she said.

Write to Anne Tergesen at

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