Student Loan Forgiveness — What is it and How Can I Qualify?
Wondering “what is student loan forgiveness?” and whether you qualify? Find out about student debt cancellation and forgiveness programs available today.
February 25, 2022
Excessive levels of student debt present a big problem for Americans, and it’s only getting bigger. The average recent graduate now owes around $29,927 at the time of graduation. And the overall average is higher still, at a whopping $36,510 per borrower.
Student loans are causing financial strain for many Americans. Student loan interest can keep growing even after graduation, particularly if the borrower isn’t paying enough to keep up with the growing balance.
Fortunately, there are some government programs in place to help. Specifically, student loan forgiveness programs may help certain borrowers lower or even eliminate their student loan debt.
But what is student loan forgiveness? And how do you qualify?
What is student loan forgiveness?
Student debt forgiveness is the idea that the government (or private lenders) could simply “forgive” existing student loans. This would essentially lower the balance to zero, or erase the loan entirely.
To be clear, true student loan forgiveness does not yet exist — except in certain programs targeted at specific people (more on this below).
The idea of private lenders forgiving student loans is far-fetched, but government loan forgiveness is more realistic. The federal government issues or backs more than 92% of all student loan debt, so the vast majority of loans could technically be forgiven.
The idea is simple: Because the majority of student debt is owned by the government, Congress could act to simply delete the debt. Just as they can essentially “create” money as we saw with the COVID-19 stimulus bills, Congress could technically eliminate all the student loan debt it holds.
The term “student loan forgiveness” is thrown around often. Politicians talk about forgiving all student loan debt but, so far, little progress has been made towards this lofty goal.
Fortunately, there are a few programs already available to borrowers. They mainly focus on public servants — those working as teachers, firefighters, government workers or nonprofit workers.
Public Service Loan Forgiveness (PSLF)
The Public Service Loan Forgiveness (PSLF) program is a large federal aid program designed to forgive student debt for teachers, police officers, government employees, nonprofit workers and more. Any role considered “public service” would typically qualify.
PSLF forgives remaining student loan debt for applicants after 10 years of qualified payments. In many cases, “qualified payment” means a payment made under an income-based repayment plan.
To qualify for PSLF, you must:
Work full time for a qualifying employer (federal/state/local/tribal government or a qualifying nonprofit organization)
Have direct student loans from the federal government
Repay your loans under an income-driven repayment plan
Make 120 qualifying payments (10 years)
Complete the application and any additional required steps
For example, let’s say a student graduates with $40,000 in student debt and goes on to become a full-time elementary school teacher.
They work at the same school for the next decade and make payments on their student loans using an income-based repayment plan. They apply for the PSLF program, which verifies that they are a full-time employee for a qualifying employer, and completes the necessary steps.
After 120 qualifying payments (10 years with monthly payments), the remaining student loans will be forgiven.
Because income-driven repayment plans require different payment amounts based on how much you earn, the actual benefit they receive will vary. You may have $25,000 of loans remaining, or you may only have $5,000 — either way, the entire remaining balance will be forgiven after the 10 year period.
Problems with PSLF
When it comes to the question of “what is student loan forgiveness?,” the Public Service Loan Forgiveness program is a great idea in theory. However, it’s been controversial due to confusing requirements and overly-strict enforcement. For instance, of the first round of applicants, 99% were rejected.
Fortunately, the program has cleaned up a lot of the underlying issues and is more clear with requirements now. In late 2021, the first round of successful applicants had their debt relieved after the 10 year period.
If you qualify for PSLF, it’s wise to apply — but read the fine print first and follow all the instructions carefully.
Other existing student loan forgiveness programs
Teacher Loan Forgiveness may forgive up to $17,500 of student loan for qualifying teachers who teach for 5 years in a low-income school.
Closed School Discharge may forgive student loans for students whose schools shut down before they graduate.
Perkins Loans Cancellation may forgive Perkins Loan balances for qualifying employees or volunteers.
Total and Permanent Disability Discharge may forgive student loans for borrowers who become permanently disabled.
The future of student debt forgiveness
It’s no secret that student loan debt is a big problem in our society. Activists and politicians are attempting to address the issue, but it’s tricky given the massive scale (total student loan debt in the US is a whopping $1.75 trillion).
Nobody can predict the future, but here are some ideas that have been floated around:
The POTUS could likely eliminate student debt with a simple executive order, although the legality of this has been questioned by Congress
Congress could expand the Public Service Loan Forgiveness program to cover everyone; debts would be forgiven after 10 years of payments
Congress could authorize partial student loan forgiveness, forgiving $X amount of loans for each graduate
Other options to pay off your student loans
What should you do if you don’t qualify for any existing loan forgiveness programs? Here are a few ideas:
Consolidate your student loans into a single loan with a lower interest rate
Pay off your student loans early by reallocating spending and tightening your budget
Make payments on your student loans while still in school to get ahead
Balancing student loan payments with other financial priorities
Student loans can feel like a huge burden. Before you start thinking too much about the question “what is student loan forgiveness?,” keep in mind that paying them off first is not necessarily the optimal solution.
For example, it’s important to weigh the pros and cons of paying off student loans vs. investing any extra money. The math might not be so clean-cut!
Likewise, if you have credit card debt or other high-interest debt, focus on paying it off before paying your student loans.
If credit card debt is holding you back from your financial goals, consider Tally†. Tally is a credit card payoff app offering a lower-interest line of credit that may help qualifying Americans get out of debt faster. Learn how Tally works here.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.