What’s the Current State of Student Loan Forgiveness?

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Mark Kantrowitz

By Mark Kantrowitz

July 6, 2023

While campaigning for President, Joe Biden promised $10,000 in student loan forgiveness per borrower. In August 2022, President Biden proposed to provide up to $20,000 in federal student loan forgiveness to tens of millions of borrowers. The announcement, which also included an extension of the federal student loans payment pause, was challenged in the courts.

Legal challenges to the student loan forgiveness proposal eventually made their way to the U.S. Supreme Court, which has now made its ruling on the matter.

Update: Supreme Court Blocks President’s Plan to Forgive Student Loans

The U.S. Supreme Court voted 6-3 against President Biden’s broad student loan forgiveness plan on Friday, June 30, 2023.

Republicans filed six lawsuits to try to block the President’s plan. Four of these lawsuits were dismissed because of a lack of legal standing. The plaintiffs were unable to demonstrate that they would be harmed by the President’s plan, a prerequisite for considering the lawsuits on the merits.

The two remaining lawsuits were appealed and reached the U.S. Supreme Court.

The U.S. Supreme Court dismissed one of these lawsuits, Department of Education v. Brown, for a lack of legal standing.

The court found that the other lawsuit, Biden v. Nebraska, had demonstrated legal standing, so the court could consider the lawsuit on the merits.

The court’s decision in the Nebraska case depended on the major questions doctrine and the separation of duties.

The major questions doctrine requires actions by federal agencies to be based on “clear congressional authorization” in situations involving “vast economic and political significance.” As the U.S. Supreme Court said in a 2001 case, Congress does not “hide elephants in mouseholes.”

The Biden administration argued that the President’s plan is justified by the waiver and modification authority in the Heroes Act of 2003.

But, the court noted that the Heroes Act of 2003 does not explicitly authorize a broad student loan forgiveness program. The court said that the President’s plan goes far beyond a modest modification of existing law. The unprecedented creation of a new massive debt cancellation program costing more than $400 billion establishes a “whole new regime” not authorized by Congress.

The separation of duties provides the power to appropriate funds to the Legislative Branch, not the Executive Branch. Only Congress has the power of the purse according to the U.S. Constitution and the Antideficiency Act. Spending hundreds of billions of dollars to cancel federal student loan debt requires an Act of Congress.

After the U.S. Supreme Court’s opinion was released, President Biden vowed to continue fighting for borrowers and to seek an alternate path to forgiveness. But, the waiver authority under the Higher Education Act of 1965, which is different from the waiver authority under the Heroes Act of 2003, would nevertheless fail to survive legal challenges for similar reasons.

Prior Update – November 2022

A U.S. District Court judge in Texas, Mark Pittman, has vacated the federal debt relief program, calling it “unlawful.” The judge, who was appointed by former President Trump, concluded that the program was a “complete usurpation” of the authority of Congress. The current administration’s argument that the Heroes Act gave them the right to forgiveness of student loans broadly was struck down.

The White House quickly appealed on Friday, November 11th saying that they “strongly disagree” with the court’s decision. The appeals process could take weeks and many borrowers will be left in limbo during this time.

Meanwhile, the Government stopped taking applications from those that think they qualify for the program.

Restoration of Total and Permanent Disability Discharges

Some disabled borrowers who qualified for a Total and Permanent Disability Discharge had their repayment obligation reinstated because they failed to submit the annual earnings paperwork during the pandemic. The U.S. Department of Education will reverse the reinstatements and provide other student loan debt relief for 230,000 borrowers with Total and Permanent Disability Discharges.

Expansion to the Payment Pause and Interest Waiver

Borrowers with a federally-held federal education loan are eligible for administrative forbearance and an interest waiver through January 31, 2022. Unfortunately, borrowers with defaulted loans in the Federal Family Education Loan Program (FFELP) were not eligible because those loans were held by guarantee agencies on behalf of the U.S. Department of Education. The U.S. Department of Education has decided to make these borrowers eligible for the federal student loan payment pause and interest waiver, affecting more than one million FFELP borrowers. FFELP borrowers who defaulted during the pandemic will also have their loans returned to good standing and the defaults removed from their credit histories.

Full Debt Forgiveness for Approved Borrower Defense to Repayment Discharge Claims

The Trump administration implemented a scheme in which defrauded borrowers received only partial forgiveness of their loans. The partial relief methodology was flawed. The U.S. Department of Education has decided that all borrowers whose borrower defense claims were approved will receive a full discharge of their loans. This will affect 72,000 borrowers who were subject to predatory student lending.

Tax-free Student Loan Forgiveness

Congress also took action concerning the tax treatment of student loan debt forgiveness. The American Rescue Plan Act of 2021 included tax-free status for all student loan forgiveness and debt cancellation through December 31, 2025. This primarily affects the forgiveness after 20 or 25 years in an income-driven repayment plan, since most other forms of student loan cancellation already had tax-free status. However, it sets the stage for future student debt forgiveness, whether implemented by executive action or new legislation.

Congress previously provided employer-paid student loan repayment assistance programs, or LRAPs, with tax-free status through December 31, 2025, in the Consolidated Appropriations Act, 2021.

The Biden administration and Congress have not yet taken any action concerning the bankruptcy discharge of student loans.

Other Ways to Lower Student Loan Payments

There are other ways outside of a full student loan forgiveness that can help you lower your total monthly payments. Each can make payments on your student loans more affordable. Here are some of the most popular opportunities to do just that.

Consolidating Loans

Borrowers with FFELP loans might consider consolidating them into a Federal Direct Consolidation Loan, in case the loan forgiveness is limited to student loans that are held by the federal government. Consolidating FFELP loans can also make them eligible for the payment pause and interest waiver, which runs through May 1, 2022.

The main risk associated with consolidation is that it resets the monthly payment clock for qualifying for 25-year forgiveness in an income-based repayment plan. Also, if a student borrower is receiving discounts from the FFELP lender, they will lose that benefit if they consolidate. Direct Loans offer a 0.25% interest rate reduction for borrowers who sign up for AutoPay and no other discounts. Otherwise, there’s no significant downside to consolidation.

Refinancing Loans

Borrowers who are thinking about refinancing federal loans into a private loan to lock in current low-interest rates may want to wait. Loans that are eligible for the payment pause and interest waiver effectively have a 0% interest rate through August 31, 2022. So, refinancing will increase the borrower’s costs in the short term. Borrowers with high-interest rates may wish to start considering student loan refinancing options, especially as the Federal Reserve begins to hike its target Federal Funds rate. On the other hand, borrowers with private student loans do not risk losing forgiveness if they refinance their private student loans into a new private loan.

Borrowers who still have jobs and are able to continue making payments on their student loans should bank the money or pay down other debt, instead of making extra payments on their loans. It’s a good opportunity to build or bulk up your emergency fund. Generally, any borrower who expects to receive loan forgiveness should not make extra payments when they are not required to do so, as that just reduces the amount of forgiveness they will eventually receive. After the details of student loan forgiveness are announced, borrowers can use the banked money to pay down debt as appropriate.

Existing Federal Student Loan Forgiveness Programs

If a borrower expects to receive loan forgiveness under President Biden, they can stop making federal student loan payments during the payment pause and interest waiver period, which was extended through December 31, 2022.

But, some borrowers may be eligible for an existing student loan forgiveness program. For example, Public Service Loan Forgiveness (PSLF) is available to borrowers who work full-time in a qualifying public service job. A borrower is eligible for loan forgiveness after making 120 qualifying payments.

During the payment pause, borrowers can still earn credit toward PSLF. As long as they continue to meet the eligibility requirements and submit the PSLF form, they will receive qualifying payment credit.

Borrowers who will not qualify for loan forgiveness when the relief period ends can also consider an income-driven repayment plan. With an income-driven repayment plan, monthly payments are adjusted based on the borrower’s annual income. After a specified period of time (20 or 25 years) the debt is forgiven.

Additional Student Loan Forgiveness Programs

There are many different types of student loan forgiveness programs beyond just the plan that President Biden announced in August 2022. Below is a brief summary of the other loan forgiveness options that you may qualify for.

Public Student Loan Forgiveness

One of the major national student loan forgiveness programs is Public Service Loan Forgiveness. This is available to government and certain nonprofit employees with federal student loans. Under the scheme, you could be eligible for your remaining loan balance to be forgiven, tax-free, after you’ve made 120 qualifying loan payments.

In October 2021, the Education Department announced a limited waiver that expanded the eligibility for payments that qualify for Public Service Loan Forgiveness, through October 31, 2022. Under the waiver, payments made on any repayment plan, as well as late payments and those made on FFEL and Perkins loans, count as qualifying payments retroactively.

Income-Driven Repayment Forgiveness

Under the federal government’s four income-driven repayment plans (Income-Contingent Repayment, Income-Based Repayment, Pay-As-You-Earn Repayment, and Revised Pay-As-You-Earn Repayment plans), monthly loan payments are capped as a percentage of your income. You’ll then be eligible for forgiveness of your remaining loan balance after either 20 or 25 years, depending on the type of plan and your individual situation, making this a type of low-income student loan forgiveness.

Loan Forgiveness for Teachers and Nurses

Working nurses may be eligible for several types of student loan forgiveness, including Public Service Loan Forgiveness, the NURSE Corps Loan Repayment Program, and Perkins loan cancellation. If you qualify, the NURSE Corps Loan Repayment Program could pay up to 85% of your student debt, though it is highly competitive.

Similarly, teachers working full-time in low-income elementary and secondary schools may qualify for the Teacher Loan Forgiveness program, which can forgive up to $17,500 in Stafford or federal direct loans. To qualify, you’ll need to work in a qualifying public school for at least five consecutive years and have loans dating from later than October 1, 1998.

Other Student Loan Forgiveness Programs

You may also qualify for other types of loan forgiveness and cancellation, depending on the type of loans you have, where you live, and your individual situation.

Other types of student loan forgiveness grants include:

  • State programs: Some states offer repayment assistance to certain professionals, such as licensed doctors, nurses, teachers, and lawyers. Canada also offers a range of similar programs such as the Ontario Student Assistance Program (OSAP) loan forgiveness.
  • Perkins loan cancellation: If you have a Perkins loan and hold a position in public service for at least years, you may be eligible to have a percentage or all of your Perkins loan student debt canceled.
  • Military loan forgiveness: Army, Air Force, Navy, Coast Guard, and National Guard personnel may qualify for loan forgiveness and/or assistance.
  • Assistance for public service professionals: Various organizations offer debt assistance to certain public service professionals.

Student Loan Discharge Programs

You may also be able to find student help assistance through student loan discharge programs. Loan discharge is very similar to loan forgiveness and cancellation but generally occurs when you no longer need to make payments on your loans due to a change in circumstances.

The most common reasons you may be eligible for student loan discharge include:

  • Total and permanent disability discharge: You may be eligible to have your remaining student loan debt canceled if you are totally and permanently disabled and unable to work. If you are a veteran, the loan discharge is usually automatic.
  • Closed school discharge: If the school where you received your loans closes while you’re still enrolled or within 120 days of you leaving, without you receiving a degree, you may qualify for loan discharge.
  • Borrower defense to repayment discharge: You could also be eligible for loan discharge if you were defrauded by your school as part of widespread fraud or misrepresentation.
  • Loan discharge after death: If you die, any federal loans of parent PLUS loans will be eligible for discharge. If your parent dies while holding a PLUS loan, this will also be eligible for discharge.

Frequently Asked Questions FAQs

What is student loan forgiveness?

In essence, student loan forgiveness is when you’re no longer required to make payments on your student loans. It can apply to all or part of your remaining student loan balance and is usually applied because of your professional or the work you do. It can come in various forms, such as federal student loan forgiveness, Perkins loan cancellation, and specific state programs.

How to apply for student loan forgiveness

To start your loan forgiveness application for Biden’s plan, the first step is to fill out an online application that first became available in October 2022 on the government’s student loan website. However, it is unavailable pending the Supreme Court ruling. For other loan forgiveness plans you should reach out to your loan servicer. If Depending on your loan servicer and the type of loan forgiveness you’re applying for, you may be able to make your student loan forgiveness application online and you may or may not be required to continue to make payments while your application is processed. 

Who qualifies for student loan forgiveness?

There is a range of people who qualify for loan forgiveness, cancellation, and discharge under Biden’s student loan forgiveness schemes, student loan forgiveness COVID, and other programs. The most common criteria are associated with your work, such as holding a certain kind of public service, nursing, or teaching position for a specific period of time, as well as military service, total and permanent disability, and because your school closes down or defrauds you.

What disabilities qualify for student loan forgiveness?

Generally, in order to qualify for student loan forgiveness, you’ll need to experience total and permanent disability which means you are no longer able to work. If you are unsure, contact your student loan servicer to see if you qualify.

What is the student loan forgiveness program?

There is a range of student loan forgiveness programs at federal, state, and organizational levels. To check whether you’re eligible for legitimate student loan forgiveness programs, contact your student loan service provider.

A good place to start:

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