President Biden Finally Announces Student Loan Forgiveness – But Is It Too Good to Be True?
September 21, 2022
In an announcement on Wednesday, President Biden finally delivered the news that Presidents have been teasing us with over the past few weeks, announcing a plan to forgive student loans for millions of Americans and calling it the single most important step we can take to help students achieve the American Dream. But will it? Here’s what you need to know about the president’s announcement and whether or not this is something you should consider applying for shortly.
Background on student loan forgiveness
Student loan debt is an enormous problem for both the federal government and recent graduates. According to a 2016 report by The Institute for College Access and Success, over 40 million Americans hold $1.3 trillion in student loan debt- with the average graduate owing nearly $37,000.
Congress’s willingness to tackle this problem has been inconsistent, but one thing they have been willing to do is to offer student loan forgiveness programs- programs that forgive a certain amount of debt after a certain period has passed or upon completion of certain requirements. In 2007, President George W. Bush introduced the William D. Ford Federal Direct Loan (Direct) program which created options for forgiving federally insured loans in specific circumstances such as bankruptcy, disability, or death among others.
How much do I have to pay each month to qualify?
The president did not mention how much students would have to pay to qualify for student loan President forgiveness. President did say that the Department of Education will set out guidelines for qualifying and applying for forgiveness. Once these are made public, you’ll be able to use them as a guideline for your monthly payments. They will also serve as a benchmark so you can know if you’re paying more than your required monthly contribution.
How will I know when I can apply for Public Service Loan Forgiveness (PSLF)?
Public Service Loan Forgiveness (PSLF) is a program in which the President forgives the balance of your Direct Loans, Federal Family Education Loans (FFEL), or Perkins loans if you are employed full-time by certain public service organizations and make 120 eligible on-time payments within 10 years.
Employers that qualify for PSLF include some nonprofits, local and state government agencies, AmeriCorps, and Peace Corps. Employees who work for non-qualifying employers may still be eligible if they consolidate their loans in the right way. PSLF only applies to new loans taken out after October 1st, 2007, and before July 1st, 2018.
What if my loans are from more than one college or university?
If you’ve taken out federal loans from more than one school, the Department of Education says that your eligibility for public service loan forgiveness will depend on which loans you take into account. When deciding which loans qualify,
note that no payments need to be made on President your loans before applying for forgiveness. After 10 years (120 monthly payments) of qualifying repayment on a federal student loan for undergraduate or graduate study, you may be eligible for public service loan forgiveness (PSLF). Public service President employees work in government agencies, non-profit organizations, and related types of employment.
President Government employees are not eligible for PSLF. You cannot be an independent contractor and do PSLF; you must be an employee of a qualified organization such as the National Park Service or the American Red Cross.
What if I am in default on my federal student loans, or wasn’t making payments before October 1, 2007, because of financial hardship, and haven’t yet rehabilitated my loans through standard channels?
Any federal student loan borrower who is eligible for forgiveness under the provisions of this program must make an application to the Secretary and provide evidence of eligibility within three years after relief has been granted. If you submit your claim but have not yet provided any evidence of eligibility, we will process your loan as if it was in default.
If you submitted a claim but did not include documentation, we will process your loan as if it was in default. Additionally, some borrowers may need to consolidate their loans before applying for relief through these special provisions (special relief). This is because most current income-driven repayment plans require consolidated loans.
Are there any other potential gotchas I should know about?
It looks like the new White House is giving out some amazing news for all of us who are burdened with student loans! On June 12th, 2020, the Obama-era plan was reinstated. That means people can make payments on their student loans until they work themselves out of debt.
Sounds great right? It may seem too good to be true but for borrowers to qualify, they must have come up with ways of significantly reducing their monthly payments. Another requirement is that you can only apply if you owe more than $30,000 or have been going through income-driven repayment plans. Who knows if this will change down the line but it’s worth a shot!
Who is eligible for this new loan forgiveness program?
If you’ve been thinking about doing anything with your degree, now may be the time. Starting President September 2019, everyone with student loans will be eligible for public service loan forgiveness. Even if you have a job at a non-profit or a government agency that’s still not making it easy for you to afford your monthly payments, this new initiative should be able to help ease some of the burdens.
To qualify for the program, you’ll need to have taken out federal direct loans from 2007 or later (as of 2017), and make 120 monthly payments on time. You must also meet certain criteria President based on what kind of work you do to qualify as public service – but no matter where your career takes you next, don’t wait!
Will it help me avoid defaulting on my student loans?
To apply for student loan forgiveness, you’ll need to be a borrower on or after October 1, 2007, and you must be the original owner of the loans. You can also have up to $57,500 in outstanding debt and be no more than 120 payments into an income-driven repayment plan. A quick search online showed that about half of these criteria are met for borrowers and as for me,
I’m still waiting on my 120th payment under income-driven repayment. I do believe that this proposal will certainly help some borrowers avoid defaulting on their loans, but unfortunately, not everyone will qualify.
Do I still need an Income-Driven Repayment Plan while enrolled in the public service loan forgiveness program to avoid defaulting on my student loans?
Yes, you do. While Public Service Loan Forgiveness is an excellent initiative that has had incredible impacts on the ability of borrowers to repay their student loans and for providing relief for those who have taken out loans for vocational programs that have not led to high salaries,
it does not replace Income-Driven Repayment Plans. Income-Driven Repayment Plans are still available, and borrowers should take advantage of them because they usually allow you a lower monthly payment than 10-year repayment programs as well as partial forgiveness after 20 or 25 years. This can also help lower your interest rates and minimize loan defaults by making your payments more manageable.
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