What Is Student Loan Forgiveness
Student loan forgiveness releases borrowers from their obligation to repay part or all of their federal student loan debt. These borrowers have taken out loans to pay for their post-secondary education. Forgiveness is available for some types of loans, but the eligibility is limited to borrowers in certain public service, educational, or military professions.
What Is Student Loan Consolidation
Consolidation is a way to make repaying student loans more manageable, and possibly less expensive. You combine all your student loans, take out one big consolidation loan and use it to pay off all the others. You are left with one payment to one lender every month.
The typical student borrower receives money from federal loan programs every semester in school. It often comes from different lenders, so it is not unusual to owe money to 8-10 separate lenders by the time you graduate. If you continue borrowing for graduate school, add another 4-6 lenders to the mix.
Each of these student loans has its own due date, interest rate and payment amount. Keeping track of that kind of schedule is complicated and part of the reason so many have defaulted. Its also why student loan consolidation is such an attractive solution.
Federal loans can be consolidated in the Direct Consolidation Loan program. You combine all federal student loans into one loan that has a fixed interest rate. That rate is derived by taking the average of the interest rates on all federal loans and rounding the rate up to the nearest one-eighth of a percent.
Though this method will not lower the interest you pay on federal loans, it will keep open all repayment and forgiveness options. Some lenders do make it possible to reduce the interest rate by making direct payments or by qualifying for a reduction by making on-time payments over an extended period of time.
Pro: Monthly Budget Flexibility
Borrowers aggressively repaying their student loans often have a tight monthly budget.
Those chasing forgiveness may have a bit more flexibility. The lower monthly payments of income-driven repayment plans can be really helpful when unexpected bills arrive.
It is also possible to leverage this monthly flexibility into long-term flexibility. Borrowers can set aside some money each month to build up a robust emergency fund.
If your budget isnt stretched thin due to student loan payments, it will be much easier to handle surprises.
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The Qualifying Criteria Are Very Stringent
To get the benefits of a forgiveness program, you have to first ensure that you are employed by a qualified employer. Thereafter, till your student loan amount is forgiven, you have to adhere to a long list of requirements to ensure you remain in the program. For instance, for the Public Service Loan Forgiveness Program, you have to be up to date with the annual documentation and paperwork. If you arent, you get disqualified from the program.
Private Student Loans Do Not Offer Income
If you have federal student loans, you could qualify to have your loans put on an income-driven repayment plan. This ties your monthly payment to a percentage of your income. Private student loans arent eligible for income-driven repayment plans. If you refinance a federal loan into a new private loan, you no longer have this option.
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What Student Loan Debt Forgiveness Will Mean For Coloradans
Were pretty sure you already know this by now, but in case you were out hiking and missed the news: President Joe Biden is not only extending the pause on student loan payments to the end of the year, but most importantly, hes moving to forgive up to $20,000 in federal student loan debt.
The pros and cons of this announcement have been a major debate in our email inbox over the past day. While perspectives shared to Denver7 | Your Opinion range from how this will help some while others feel left out, to what precarious economic situation student loan forgiveness is going to put the country in for the future, the debate is not as black and white as you might think.
For many Coloradans though, this is good news. So let’s do a deep dive into who is eligible and what all this could mean down the road.
Wondering if youre eligible? We’ll definitely get into all the details. Weve more got more here.
In this 360 In-Depth report, well dive into:
- Who’s eligible for student loan debt forgiveness
- How student debt relief will affect Coloradans
- Why some argue this is a bad idea
- The unintended consequences of student loan debt forgiveness
For Many Coloradans The News Brings A Sigh Of Relief
While the fierce political debate raged wherever you log into social media on Wednesday, some Coloradans riddled with student loans are just taking time to celebrate.
And as a single mother of four, life hasn’t been cheap for Maisha Fields.
“Raising children by myself, putting them through college themselves, making sure that they have all the things that they need, the extracurricular activities that they’re involved in, paying a mortgage, paying a car note, and then also paying federal loans,” she told Denver7s Pattrik Perez.
Maishas student loan debt at one point totaled about $70,000. While some of that has been paid off and forgiven through her career as a healthcare worker, she still has about $42,000 left.
“It’s hard to make ends meet sometimes,” Fields said.
But things will now get a little easier for her and millions of others.
“I feel like I won the lottery today, I’m not gonna lie about that,” she said. “I would have loved if the administration, say, were making it completely debt clear and free, but I am grateful for $10,000 because it’s $10,000 I didn’t have.”
For Fields, this helps paint a path forward to becoming debt-free, but she acknowledges the work is just beginning.
“Justice looks like an education system where everyone has access and doesn’t leave an educational system with $50,000, $100,000 or $300,000 worth of debt and no job to go to,” she said.
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Has This Day Come For You
Jesus took this theme a step further: Whoever would save his life will lose it, but whoever loses his life for my sake will find it . Loses translates a Greek word meaning to destroy utterly, to bring to ruin. If we obliterate our life for Jesus sake, we will find itguaranteed. And only then.
The Bible repeatedly calls us to submit our lives completely to God with the promise that he will give us in return a life we could never achieve or experience otherwise:
- Humble yourselves before the Lord, and he will exalt you .
- Trust in the L with all your heart, and do not lean on your own understanding. In all your ways acknowledge him, and he will make straight your paths .
- Seek first the kingdom of God and his righteousness, and all these things will be added to you .
- I have been crucified with Christ. It is no longer I who live, but Christ who lives in me. And the life I now live in the flesh I live by faith in the Son of God, who loved me and gave himself for me .
In The Normal Christian Life, the Chinese theologian Watchman Nee wrote: A day must come in our lives, as definite as the day of our conversion, when we give up all right to ourselves and submit to the absolute Lordship of Jesus Christ.
Has this day come for you?
Can the Spirit reproduce the life of Christ in your heart today?
Cons Of Student Loan Forgiveness Programs
Knowing the cons of student loan forgiveness programs is as important as knowing the pros. Understanding the cons helps you truly make an informed decision as to whether you should apply for student loan forgiveness program and also which one is best for your circumstances.
Some of the disadvantages of these forgiveness programs include:
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Reduce Your Interest Rate
Refinancing student loans can potentially lower your interest rate. This could save you thousands of dollars, depending on your loan amount and the new loan terms. For example, say you have $50,000 in student loan debt at 7% interest on a 10-year term. If you were able to refinance that amount at a lower rate of 4% for the same term, you would save $8,918. Keep in mind that you may not have access to lower interest rates if your credit history is poor. Try your best to improve your and debt-to-income ratio so that you can access lower interest rates.
Use our Student Loan Refinancing Calculator to estimate how much you could lower your total and monthly loan payments by refinancing your student loans.
Pros And Cons Of Refinancing Student Loans
A common motivation behind student loan refinancing is saving money, either through reduced interest rates or monthly payments. But what happens when you refinance a student loan, apart from saving money?
Heres a quick reference for the pros and cons of student loan refinancing. Well dive deeper into each advantage and disadvantage throughout this article.
|Pros and Cons of Student Loan Refinancing|
|4. Variable interest rates could increase|
|Release a cosigner from the student loan||5. You will lose your grace period for federal student loans|
|6. You may not qualify for refinancing|
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Con: Student Loan Forgiveness Could Be The Expensive Option
Qualifying for student loan forgiveness may not be the best way to save money.
Because interest accrues daily, borrowers might save money by paying off the loans right away. Stretching payments out over a period of 20 years or more could end up being very expensive. In some cases, quick repayment could cost less money than chasing after forgiveness.
Taxes may also tip the scales. Borrowers who qualify for loan forgiveness from 20 or 25 years of income-driven repayment will be taxed on the debt forgiven. The money spent on interest over the life of the loan plus the tax on forgiveness can add up.
Chasing forgiveness wont be too expensive for borrowers with large amounts of debt and little chance of paying it off. However, things may be different for those who can reasonably afford to pay off their loans. The math could show that payment in full is the best approach.
Difference Between Student Loan Consolidation And Refinancing
Refinancing student loans is similar to the Direct Consolidation Loan program in that you bundle all your student loans into one loan and make a single monthly payment, but there are important differences that you should look at before making a decision.
Refinancing, sometimes called private student loan consolidation, is primarily for private loans and can only be done through private banks, credit unions or online lenders. If you borrowed from both federal and private programs and want to consolidate the whole batch, that only can be done through a private lender.
The major difference between refinancing and Direct Loan Consolidation is that with refinancing you negotiate a fixed or variable interest rate that should be lower than what you were paying for each loan individually. The lenders take into account your and whether you have a cosigner in determining your interest rate.
However, if federal loans are part of your refinancing, you lose the repayment options and forgiveness programs they offer, including deferment and forbearance. Those last two items can be crucial if you run into financial complications while repaying your loans.
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Opinion: Should The Government Forgive College Student Loan Debt
Should the federal government forgive student loan debt? The short answer is yes. While many people mistakenly put the blame on students, the current student loan debt crisis is the result of failed policies at both the state and federal levels.
Year after year, states spent fewer dollars on higher education, leading to astronomical increases in the cost of public college and shifting the burden of payment to students and their families. At the federal level, the Pell Grant, which is the primary source of non-loan financial aid for students from low-income backgrounds, currently covers less than 30% of the cost of attending a four-year public college or university. In the mid-1970s, during the programs early years, it covered three-fourths of the average cost of attendance.
Con: You May Never Qualify For Student Loan Forgiveness
While there are many words to describe student loan forgiveness programs, simple is not one of them.
When borrowers first became eligible for Public Service Loan Forgiveness, the early results were ugly. Over 99% of applicants were rejected. Even after Congress tried to fix things, rejection rates were still well over 90%.
Planning on forgiveness under the current rules could be a mistake. Betting on the rules changing could be a risky and expensive bet.
Borrowers planning on student loan forgiveness should proceed with caution. Dont assume forgiveness will work. Instead, be proactive and take all available steps to track your progress.
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Specialized Loan Forgiveness Programs
If you work or volunteer for certain organizations, you may be eligible for additional programs that will forgive or reduce your student debt. Here are some examples:
- AmeriCorps VISTA, AmeriCorps NCCC, or AmeriCorps State and National programs: Volunteers for these programs can receive up to the maximum Pell Grant award toward repaying qualified student loans through the Segal AmeriCorps Education Award. For the 20212022 school year, this amounts to $6,495.
- Army National Guard: The Army National Guards Student Loan Repayment Program can help you earn up to $50,000 toward loans. Covered loans include Federal Direct, Perkins, and Stafford loans.
- Full-time teachers in low-income schools or educational service agencies: Through the Teacher Loan Forgiveness Program, teachers may be eligible for forgiveness of up to either $5,000 or $17,500 on their Federal Direct and Stafford loans after five consecutive years of service. The higher amount is for certain math, science, and special education teachers. The Education Department has further details on its website.
- Medical and nursing school graduates: Working in underserved areas can qualify doctors and nurses for student loan forgiveness under some state programs.
Column: Republicans Attacking Student Loan Relief As A Taxpayer Burden Got Their Own Degrees On Taxpayers Dime
Who paid for the college education for GOP critics of Bidens student loan relief? The taxpayers, thats who.
That is why history is replete with billions spent on fixing problems that would have taken millions to prevent. Look no further than the homelessness crisis, which used to be someone elses problem until it wasnt.
Much has been made about the likes of Rep. Marjorie Taylor Greene and the other Republicans who have rabidly denounced student loan cancellations. Turns out, they had their own far larger Paycheck Protection Program loans forgiven. We know they have no shame and their supporters are not deterred by their blatant hypocrisy. And thats how it has always been.
But for people genuinely asking about fairness or economic impact, there are issues to consider. If postsecondary education is the route to the middle class, is not college debt a sign of someone trying to pull themselves up? What is it about the struggles of these people that seem less worthy of assistance? Sure, we can find examples like Republican Texas Sen. Ted Cruzs hypothetical slacker barista, who game the system, but we can also point to examples of businessmen who repeatedly file for bankruptcy and still get loans but that doesnt mean thats the norm.
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Arguments Against Student Loan Forgiveness
Many are questioning the legality of the presidents decision. The Office of the General Counsel of the US Department of Education previously determined that a presidential administration does not have the statutory authority to provide blanket or mass cancelation, compromise, discharge, or forgiveness of student loan principal balances, and/or to materially modify the repayment amounts or terms thereof.
House Speaker Nancy Pelosi has also stated that the president lacks the executive authority to cancel student loan debt. And she noted that under such an action, Americans would be paying taxes to forgive somebody elses obligations.
The Committee for a Responsible Federal Budget warns that canceling student debt will add to inflation and will undermine the Inflation Reduction Act. Critics also claim that the action is unfair to those who chose not to go to college, those paying back loans taken for other purposes , those who have already paid off their student loans, those who chose colleges that required them to borrow less money, and those who will take out student loans in the future .
If Youre Eligible What Do You Have To Do
As exciting as student loan forgiveness sounds, there will be an application youll have to fill out to claim the relief. More on that will be announced in the coming weeks, officials with the Department of Education said.
For nearly 8 million borrowers, the relief will be automatic because of information already available to the department.
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Con: Inflation Is Already Bad And Student Loan Forgiveness Will Only Make It Worse
While student loan forgiveness might have “seemed like a good idea” in November 2020, that time has passed, Matt Yglesias argues at Bloomberg. The “supercharged” demand from the $900 billion stimulus package and the American Rescue Plan has become “superdupercharged” due to the sanctions and resulting high oil prices following Russia’s invasion of Ukraine, meaning the economy “no longer needs stimulus in fact, it needs to restrain demand.” Since a “majority of the public” doesn’t have student debt, Yglesias writes, and it is higher-income individuals who tend to be the ones who owe money, restarting collections would come largely at the “expense of a disproportionately high-income minority of the population” while also helping to “reduce the volume of customer demand in the economy,” rather than further increase it.