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According to the Education Data Initiative, student loan debt in the U.S totals $1.73 trillion, and is growing six times faster than the U.S economy. About 43 million Americans currently owe an average of $37,105 for their federal loans. If you'd like to get some relief on loan repayment, you need to know how federal loan forgiveness works. 

Obtaining federal loan forgiveness means you can get up to 100% off your loan repayment plan. Of course, this is subject to strict eligibility criteria and the type of loan you originally signed up for. In this article, we'll take you through the "in and out" of federal loan forgiveness, so you can make an informed decision. 

Understanding Federal Student Loans in the U.S (Importance and Long-term Implications)

Due to the high cost of education in the U.S, most people have to take student loans to fund their studies. A 2019 report by the U.S news shows that about 65% of graduates in 2019 had borrowed student loans. 

Asides from the obvious benefit of helping students fund expensive education, what other advantages do federal student loans provide? To answer this, let's look at five(5) benefits of federal student loans. 

  1. Federal loans are easy to get compared to private loans. For instance, you don't need to have a good credit score or cosigner before your loan request is approved. 
  2. Federal loan repayments are flexible. For example, you can use the deferment clause to postpone payments due to economic hardship for up to three years. 
  3. Most federal loans support income-driven repayment, making it easier for you to lower payments so you don't default. 
  4. Taking a federal loan means you can benefit from multiple forgiveness, cancellation, and loan discharge options. For example, Perkins loan borrowers who work in public service can see forgiveness after a shorter time.
  5. The interest rate on federal loans is fixed and typically lower than both private loan and credit card interest rates.
Use for Free: Student Loan Application Form Template

Implications of Federal Student Loans in the U.S.

  1. Higher numbers of student loans have a negative impact on the GDP. Recent data shows that student debt shaves roughly 0.05% off GDP per year. These loans end up increasing debt burdens, lowering credit scores, and ultimately, limiting the purchasing power of those who have to repay these loans.
  2. Presently, about $158.5 billion worth of federally managed student loans is considered in default. Due to low-income levels, plus job search challenges, many students may not find the right job that can finance loan repayments. 

Forgiving student loans is a way to significantly reduce the debt on Americans aged 18–35. It would certainly free up more cash for new expenses, and improve the cash flow in the economy. 

Explore: International Student Application Form Template

Overview of Rejection Rates for Student Loan Forgiveness Requests

According to a Freedom of Information Act (FOIA) request, the Public Service Loan Forgiveness program will continue to reject 80% of student loan borrowers by 2026. This is based on the existing data but there are clear indicators that the numbers may worsen over time. 

The latest monthly projections by PHEAA show that only 276,370 student loan borrowers will secure public service loan forgiveness through January 2026. This data accounts for approximately 20%, or 1 in 5 borrowers out of 1,250,373 who have currently declared their intent to pursue public service loan forgiveness.

Reasons Why Student Loan Forgiveness Requests are Rejected

Generally, your student loan forgiveness request wouldn't be approved if you fail to meet the application criteria. Every loan forgiveness type has its specific criteria so it's best to get familiar with them before any loan forgiveness applications. 

For example, your federal loan forgiveness request might be turned down for the following reasons: 

1. You Have The Wrong Loan 

If your loan falls outside of federal direct loans, your request for loan forgiveness wouldn't be approved. Federal direct loans include: 

  • Direct subsidized and unsubsidized loans
  • Direct PLUS loans
  • Direct consolidation loans

If you're not sure where your loan falls, you can check your loan contracts or monthly bills—the loan type is always listed on the top of your bill. Another way to find out what type of loan you have is by calling the Federal Student Aid Information Center at 1-800-433-3243. 

2. You Don't Work for a Qualifying Employer 

A small portion of Public Service Loan Forgiveness forms was rejected because they didn't meet the employment certification requirements. The Public Service Loan Forgiveness body clearly states that applicants must be employed by a federal, state, local or tribal government or an eligible nonprofit organization, and work full-time.

At the same time, you're expected to make qualifying payments while working full-time for that organization. Understandably, this requirement can get pretty complicated so it's no surprise that many people fall off here. 

3. No Record of Your Student Loan Payment 

According to the PSLF loan forgiveness requirements, borrowers must make 120 qualifying payments while working full-time for a qualifying employer.

As you make these payments, make sure you keep a copy of the transactional receipts. This way, you can easily settle any transaction disputes with the Department of education. 

Explore: Personal Loan Application Form Template

Differences Between Loan Forgiveness, Cancellation, and Discharge

At face value, loan forgiveness, cancellation, and discharge mean the same thing but these terms are used in different contexts. 

According to the Student Aid Help Center, loan forgiveness or cancellation means you are no longer required to make payments on your loan(s) due to service in a certain type of job (in the nonprofit/public sector). For example, people who have served in the public sector, including the military, are eligible for loan forgiveness or cancellation. 

On the other hand, if you are no longer required to make payments on your loan(s) due to other circumstances due to total or permanent disability, or other similar circumstances, then this is referred to as loan discharge. 

Types of Forgiveness, Cancellation, and Discharge programs in the US

1. Public Service Loan Forgiveness

Public Service Loan Forgiveness (PSLF) cancels the remaining debt on eligible student loans after the borrower makes 120 qualifying monthly payments in an eligible repayment plan while working full-time in an eligible public service job.

It is a viable option for people employed by the government, who have outstanding direct loans. 

2. Teacher Loan Forgiveness

The teacher loan forgiveness option covers direct loans and FFEL program loans. It's available for anyone who has been a full-time teacher for five complete and consecutive academic years in a low-income elementary school, secondary school, or educational service agency. 

Under this loan forgiveness program, you can get up to $17,500 forgiveness on your Direct Loan or FFEL Program loans. 

Eligibility Criteria for Teacher Loan Forgiveness
  • There should be no outstanding balance of your direct loan or Federal Family Education Loan.
  • You must have been employed as a full-time, highly qualified teacher for five complete and consecutive academic years, and at least one of those years must have been after the 1997–98 academic year.
  • You must have worked at a low-income school or educational service agency. 
  • The loans you're seeking forgiveness for must have been made before the end of your five academic years of qualifying teaching service. 

3. Closed School Discharge

Closed school discharge covers direct loans, FFEL Program loans, and Perkins loans. You may be eligible for this type of loan forgiveness if your school closes while you’re enrolled or soon after you withdraw. In other words, you wouldn't have to repay any federal loans.  

Eligibility Criteria for Closed School Discharge 
  • You were enrolled in the school when it closed or you were on an approved leave of absence. 
  • Your school closed within 120 days after your withdrawal (if your loans were first disbursed before July 1, 2020)
  • Or your school closed within 180 days after you withdrew (if your loans were first disbursed on or after July 1, 2020) 

4. Perkins Loan Cancellation and Discharge 

This type of loan forgiveness only covers Federal Perkins Loans. You can get a total cancellation of a Federal Perkins Loan if you have served full-time in a public or nonprofit elementary or secondary school as a direct employee. 

Specifically, people who have worked as:

  • Teachers in a school serving students from low-income families;
  • Special education teachers;
  • Or teachers in a field where there's a shortage of qualified instructors 

...can receive a loan cancellation. You can learn more about the Perkins Loan Forgiveness on the Student Aid website. 

Free to Use: Loan Forgiveness Form Template

5. Total and Permanent Disability Discharge

This type of loan forgiveness covers people who are totally and permanently disabled. It is available for federal student loans and Teacher Education Assistance for College and Higher Education (TEACH) Grant. 

To apply for a Total and Permanent Disability loan discharge, you are required to complete and submit a TPD discharge application, along with documentation showing that you meet our requirements for being considered totally and permanently disabled. 

Other forms of loan forgiveness include discharge in bankruptcy, discharge due to death, and borrower defense to repayment. 

Eligibility Criteria for Federal Loan Forgiveness

To qualify for Public Service Loan Forgiveness, you must meet two(2) eligibility criteria: 

1. You should have a Federal loan such as

  • Direct subsidized and unsubsidized loans
  • Direct PLUS loans
  • Direct consolidation loans

If you don't have any of these types of loans, there's no need to fret. New regulations show that until October 2022, people who have made 10 years' worth of payments while in a qualifying job will be eligible for loan relief no matter what kind of federal loan or repayment plan they have.

2. You must have a qualifying job, and make 120 qualifying payments

Not sure you have a qualifying job? Use this help tool on the Federal Student Aid website to check if you work for a qualifying employer: https://studentaid.gov/pslf/ 

3. You must repay your loan under an income-driven plan. 

How to Apply for Student Loan Forgiveness 

There are different types of student loan forgiveness in the U.S, and each of them has a unique application process. So, get familiar with the process that applies to you before you file any requests. 

Another thing you should know is applying for student loan forgiveness is free; that is, there is no fee to apply for loan forgiveness. The American Rescue Plan Act of 2021 made all student loan forgiveness and student loan discharge tax-free through December 31, 2025. Also, you don't need to pay anyone to help Fastrack your request. 

How to Apply for Public Service Loan Forgiveness (PSLF)

To apply for PSLF, visit https://studentaid.gov/PSLF to access the PSLF Help Tool. This tool will confirm that you work for an eligible employer, and also allow you to file an Employment Certification Form (ECF) or apply for public service loan forgiveness.

How To Apply for Teacher Loan Forgiveness 

If you meet the eligibility criteria, you can apply for Teacher Loan Forgiveness. For this, you will submit a Teacher Loan Forgiveness Application to the loan servicer or servicers. The chief administrative officer at your school or educational service agency must complete the certification section of the application form before you can go ahead. 

How To Apply for Loan Forgiveness for Volunteering

If you volunteer with the Peace Corps or some other national body, you can qualify for loan forgiveness for volunteering. For example, volunteers with the Peace Corps may receive a transition payment (readjustment allowance) of more than $10,000 after the completion of two years of service.

You can go through the U.S Department of Education's detailed guide to learn more about loan forgiveness for volunteers. On the other hand, if you're a Segal AmeriCorps Education Award recipient, you can apply for loan forgiveness by: 

  1. Visit the My AmeriCorps portal
  2. Click on, "Create Education Award Payment Request" 
  3. Choose "loan payment" as the payment type. 

Conclusion

With the educational policies of the Biden administration, it's a lot easier to get forgiveness, cancellation, or discharge of your student loans. However, understanding the rules and adhering to them is the only way you'd benefit from student loan forgiveness programs.

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