Youre Probably Going To Have To Pay Your Student Loan
Most people wont qualify for loan forgiveness as the system now stands, whether through IDR or other programs such as Public Service Loan Forgiveness, designed to help people who work for the government and non-profit organizations. For them, the ongoing moratorium is simply a pause the majority of people will resume payments after the moratorium is over and will have the length of their loan extended to compensate for the suspended payments. So, if you had five years worth of payments left when the moratorium began in March 2020, you will have five years beginning when your payments restart.
If you have a loan that youre scheduled to resume paying, chances are, youve already heard from the Department of Education. The department reported sending more than 125 million monthly email messages to about 35 million borrowers between August and November to begin preparing people to resume paying their loans. The department told the Government Accountability Office it has valid email addresses for 87% of all borrowers who were granted emergency relief because of the pandemic.
The Education Department told the GAO it expects coaxing people to start payments after a moratorium of more than two years will be a challenge. The department has created a communication plan and a plan to work with borrowers to assist them.
The department plans to ease the transition by temporarily not reporting missed payments to credit ratings agencies, according to a GAO report.
Automatic Federal Student Loan Forbearance
The Coronavirus Aid, Relief and Economic Security Act grants federal student loan borrowers automatic administrative forbearance if the U.S. Department of Education owns the loans. What does this mean?
Originally passed on March 13, 2020, extended through Sept. 30, 2021, and again extended to Jan. 31, 2022the CARES Act was extended once again on Dec. 22, 2021, until May 1, 2022. This still means:
- Your interest rate will drop to 0%.
- You don’t have to make payments.
- If you want to keep making full or partial payments during this time, you can.
- You won’t be charged any late fees.
- Interest will stop accruing.
- The interest you owed on March 12, 2020, will not be added to your principal balance.
- You don’t have to contact your loan servicer to request these benefits if you’re eligible for them.
When you log in to your student loan account or look at your student loan statement, it should show an interest rate of 0% if you’re receiving the benefit. If your rate is not 0%, double-check that your servicer hasn’t made a mistake. Here’s how to determine if you should be getting this rate.
The American Rescue Plan, passed by Congress and signed by President Biden in March 2021, includes a provision that student loan forgiveness issued between Jan. 1, 2021, and Dec. 31, 2025, will not be taxable to the recipient.
Student Loan Forgiveness In Canada
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According to a Canada Student Loans Program Statistical Review, 625,000 students received student loans during the 2018 2019 school year. Plus, the average loan amount was somewhere in the $5,700 range, while the average loan balance was over $13,300 by the time students completed their education.
Statistics also showed that around 330,000 students entered the Repayment Assistance Plan because they couldnt afford their loan payments . Are you a Canadian student struggling to pay off student loan debt? If so, you may be able to resolve the situation by getting loan forgiveness.
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Tax Bomb Temporarily Eliminated
In March 2021, President Biden signed the American Rescue Plan Act, which prohibits the IRS from treating the remaining loan balance as taxable income at the end of student loan repayment plans. Before that law was passed, student loan borrowers would have to pay taxes on the amount forgiven, which would cause them to exchange one debt for another.
The ban on student loan forgiveness as taxable income lasts through the end of 2025.
Alternative Student Loan Relief Options
If you have private student loans, or if you dont qualify for a loan forgiveness program, there are other strategies that can help you pay off your loans. Here are a few to consider:
- Refinance your student loans: If you have good credit or have a trusted co-signer in mind, refinancing your student loans could help you save money by getting you a lower interest rate. Keep in mind, however, that you will lose your federal student loan protections when you refinance.
- Deferment:Student loan deferment is a benefit that allows you to temporarily stop making your monthly payments when you return to school, enlist in the military or become unemployed. In some cases, interest will not accrue.
- Forbearance: Student loan forbearance is similar to deferment in that you can temporarily stop making your monthly payments. The primary difference is that interest will accrue during all forbearance periods. Forbearance is typically designed for borrowers experiencing major financial hardship.
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Public Student Loan Forgiveness
A Public Student Loan Forgiveness is a program organized by the government for students with the sole purpose of offsetting the loan debt of the student in exchange for rendering services on behalf of the government.
Public student loan forgiveness is also called federal student loan forgiveness. This forgiveness or pardon is for only students that are currently on a loan program particularly the federal student loan. Therefore, this implies that only students that took a loan from the government can enjoy forgiveness.
The Confusing Case Of Ffelp Loans
Almost 6 million federal student loan borrowers can’t get any relief from the CARES Act because a commercial lender holds their loans, according to calculations by Travis Hornsby, the founder of Student Loan Planner, a company that helps borrowers tackle student loan debt.
Maybe you had Stafford loans, a type of FFELP loan that hasn’t been issued since they were replaced by Direct loans in 2010. FFELP loans were federal loans, but they were issued by private lenders. Who owns them now? Sometimes, it’s the Department of Educationand that means you get the CARES Act relief. Other times, it’s a commercial lender, and you won’t qualify for CARES Act relief.
Let’s say you’ve found the part of your servicer’s website that says who owns your loans, and you see something like this:
- Current Owner: NELNET FEDERAL LOAN TRUST
- Guarantor: PA HIGHER EDUCATION ASSISTANCE AGENCY
Does “Federal Loan Trust” in the name mean the federal governmentthat is, the Department of Educationowns your loan and you should be getting automatic administrative forbearance?
Unfortunately, the answer is no. “If a Stafford FFELP loan is owned by Navient Federal Loan Trust, it is not owned by the U.S. Department of Education and therefore is not eligible for the payment pause and interest waiver,” said and one of the country’s leading experts on student loans.
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How To Apply For Public Service Loan Forgiveness
To apply for PSLF, you must fill out an Employment Certification Form every year and make pay stubs, W-2 forms or other documentation available as requested.
If you have met the repayment requirements, submit a PSLF application to the Department of Education. If its approved, the remaining balance of your loan will be forgiven.
But be aware, the whole PSLF program is in limbo until President Biden or Congress submit a plan for changing the program. Its possible that monthly payments would also be slashed. People earning less than $25,000 a year and couples earning less than $50,000 would pay nothing toward their loans until their incomes rose above those levels.
Student Debt Relief Companies
Before paying any company to help reduce your student loan debt, make sure you know about free student loan assistance. Very often, you can receive the same relief at no cost by working with your student loan servicer. If you decide to pay a company, first read the information below about your rights when interacting with these companies.
Student debt relief companies, sometimes called student debt consultants, are companies that claim they can save you a large percentage of your monthly student loan payments. These companies generally obtain lower monthly payments not through their own programs, but by assisting borrowers in completing the paperwork required to consolidate their outstanding student loan debt into a single, new loan issued by the U.S. Department of Education and by repaying that loan under an income-based plan.
You do NOT need to pay to enroll in the many borrower assistance programs that the federal government provides for free.
These programs include loan consolidation, income-based repayment plans, and loan forgiveness. The government even provides options to borrowers who have already defaulted, such as loan rehabilitation.
New York law regulates companies that advertise or offer student debt relief. You can read about the specific types of companies and services that are covered here, however the following are generally not considered student debt relief companies and generally offer free assistance:
The contract must contain the following:
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Student Loans And Bankruptcy
You may have heard that you cannot discharge your student loans, even in bankruptcy. This is NOT correct. You can discharge your federal and private student loans in bankruptcy if you are able to demonstrate in court that paying your loans would cause you and your dependents undue hardship. The court will consider your financial circumstances in determining whether paying your student loans would cause an undue hardship. Filing for bankruptcy is a very personal decision and can have a significant, long-term impact on your finances. If you are thinking seriously about filing, you should consult a lawyer.
To learn more about discharging student loans in bankruptcy, visit StudentAid.gov.
Student Loan Forgiveness Alternatives
The qualifying standards for student loan forgiveness eliminates many of the 45 million borrowers, but there are other avenues to pursue that might make repaying your debt a little less challenging.
The most obvious one for federal loans is to sign up for one of the income-based programs. These programs adjust your monthly payment based on your income, so if youre not making much, you arent required to pay much.
The historically low interest rates in 2020 were a prime time for borrowers to examine whether refinancing their student loans made sense. Some borrowers were able to get rates at 3% APR and that reduced their monthly payment to a manageable level. Be aware, however, that if you refinance a federal student loan, you will lose the many options federal programs offer.
If your money crunch is temporary, you can ask that your loans be deferred or place in forbearance. This allows you time to reorganize financially so you can meet monthly payment responsibilities.
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Revised Pay As You Earn
RePAYE is a modified version of PAYE that has become available to borrowers after December 17, 2015. Unlike PAYE, which was available for loans taken out after 2007, RePAYE is open to all Direct Loan Borrowers, regardless of when the loan was taken out.
The repayment plan still caps your payment at 10% of your discretionary income, and the loan will be forgiven after 20 years.
The RePAYE plan also includes an interest subsidy that would help cover 50% of the interest in cases where the new payments cannot keep up with the accruing interest.
You can learn more about RePAYE and the interest subsidy here.
Do You Have To Pay Taxes On Student Loan Forgivenessdebtcom
Any loan forgiven through government student loan forgiveness plans is not considered taxable income. However, loan amounts forgiven through other methods may be taxable. Closed school and false certification cancellation require you to pay taxes.
The good news is that in early 2018, Congress established that discharge for total and permanent disability automatically qualifies you for the exemption. So, if youre a Veteran, you dont need to apply for the exemption with the IRS to avoid taxes on your forgiven debt.
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Potential Pitfalls Of Forgiveness
The IRS likes to tax things, and forgiven debt is no exception. Public service loan forgiveness is not taxable. But any balance wiped out through an income-driven repayment plan can be counted as income and taxed. It’s important to prepare for this eventual tax bill. Consider setting aside money in a dedicated savings account.
Note that the American Rescue Plan , passed by Congress and signed by President Biden in March 2021, includes a provision that student loan forgiveness issued between Jan. 1, 2021, and Dec. 31, 2025, will not be taxable to the recipient.
Differences Between Forgiveness Cancellation And Discharge
The U.S. Department of Education offers different programs to wipe away some or all of your federal student loan debt. If it eliminates your loan balance because of your job, the government will refer to that as forgiveness or cancellation. And if it clears your student loan debt because of disability, death, or your school closed, the Department will refer to that as discharge.
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Obtaining A Federal Direct Consolidation Loan
To obtain a federal direct consolidation loan, contact the US Department of Education.
If you have not yet consolidated, you can seek a federal direct consolidation loan in order to obtain an income contingent repayment plan. Federal direct consolidation loans are available if you havent been able to obtain a FFEL consolidation loan, income sensitive repayment terms acceptable to you or if you have defaulted on your FFEL loans.
You can request income-contingent repayment or income-based repayment. The consolidation loan application does not currently include a checkbox for requesting these repayment plans, so you must ask for it separately.
Is More Student Loan Help On The Way
Andrew Pentis, a certified student loan counselor at Student Loan Hero at Lending Tree, says he expects targeted relief to continue to address different groups of borrowers.
Candidates for such programs could be teachers or healthcare workers, Pentis said, as well as parent borrowers who may be buckling under burdensome debt. People who are facing bankruptcy or are in bankruptcy may also be candidates for relief.
But Pentis said people dont have to wait for the federal government to act. Many are not aware of programs that already exist on the state level and through their schools and other resources. Pentis also advised checking with your employer to see whether your workplace offers help repaying student loans.
Pentis said most student loan repayment programs are under-utilized because people arent aware of them. Student Loan Hero has a database of 120 resources you can check to see if you might be eligible for assistance toward student loan repayment.
He said people should consider consulting a student loan counselor who can help navigate available options. Pentis suggested non-profit credit counseling agencies can help borrowers figure out their options. These agencies will often provide counselors for a low fee or no fee at all.
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Student Loan Forgiveness: Which Loans Are Eligible
Only direct loans made by the federal government are eligible for forgiveness. Stafford loans, which were replaced by direct loans in 2010, are also eligible. If you have other federal loans, you may be able to consolidate them into one direct consolidation loan that would make you eligible. Non-federal loans do not qualify for forgiveness.
In 2020, borrowers with federal student loans who attended for-profit colleges and seek loan forgiveness because their school defrauded them or broke specific laws were dealt a setback when former President Trump vetoed a bipartisan resolution that overturned new regulations that make it much more difficult to access loan forgiveness. The new, more onerous regulations went into effect on July 1, 2020.
In 2021, under the Biden Administration, the Department of Education canceled a total of $1.5 billion in student loan debt for nearly 92,000 students, who were victims of for-profit college fraud.
Forgiveness Of Public Service Loans
People who work in public service can benefit from the Public Service Loan Forgiveness program, which is available in a range of disciplines. Its less about your job title and more about the company you work for in this program. There are several occupations that qualify for PSLF that you may not have considered.
You may be eligible for loan forgiveness after making 120 payments. Payments do not have to be made in a certain order, but they must be done on a qualified repayment plan.
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They Promise Immediate Forgiveness
If it sounds too good to be true, it probably is. For example: If someone says they can forgive your $150,000 student loan balance for the small fee of $5,000, dont believe them. Theyll take your money, and youll never hear from them again.
If you need student loan help, call your loan service provider to see what forgiveness or assistance you qualify for.
Oh! And dont believe those fake federal student loan forgiveness calls that say Presidents Biden or Trump forgave student loans as part of the coronavirus relief package or CARES Act. They definitely didnt do that. However, interest on student loans is suspended until the end of the COVID-19 emergency relief period.1
What Types Of Loans Are Eligible
Previously, only payments on Direct Loans and Direct Consolidation Loans could count toward the 120 qualifying payments for forgiveness. Payments made on loans from the Federal Family Education Loan program and the Federal Perkins Loan program were not eligible. You can consolidate these loans into Direct Consolidation Loans, but any previous payments would not carry over.
Under TEPSLF, FFEL and Perkins loans still must be consolidated into Direct loans. However, payments that were made before consolidation on these loans will now count toward the required payments for PSLF. This change will affect payments retroactive to October 1, 2007. ED estimates that the average borrower could receive 23 additional qualifying payments.
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