Student loan forgiveness will not be available to everyone, but this plan is available now.
Here’s what you need to know.
Student loan forgiveness may be on the mind of student loan borrowers, but it probably won’t happen – in the form of wide-scale student loan cancellation – in the near-term. President Joe Biden has been focused on targeted student loan cancellation during his first year as president. Biden has now canceled nearly $ 10 billion of student loans, including student loan cancellation for borrowers with a total and permanent disability and at least $ 1.5 billion for borrowers who were misled by their college or university through borrower defense to repayment. This makes Biden the president who has canceled the most student loan debt in history. Through the end of student loan relief on January 31, 2022, Biden will have canceled at least $ 70 billion of student loans for student loan borrowers. This includes $ 5 billion a month in interest savings through Covid-19 temporary student loan forbearance, which Biden extended twice. On this same basis, President Donald Trump canceled more than $ 20 billion of student loans for student loan borrowers through two similar extensions.
Student loan forgiveness will not be available to everyone
Simply put, there is no current, mainstream legislative or executive plan to cancel all student loan debt. Sen. Bernie Sanders (I-VT) has supported total cancellation of all $ 1.7 trillion of student loans, including private and federal debt. Legislators and advocates have tweeted the need to “cancel all student loans.” However, despite the rhetoric on social media, the reality is different in the hall of Congress. There is no mainstream legislative plan to cancel private student loan debt on a wide-scale basis. (Here are 17 ways for Biden to fix student loan forgiveness). Progressive Democrats have pushed legislation to provide student loan relief for private student loans that is commensurate to federal student loans. However, that’s different than wide-scale student loan cancellation of private student loans. The leading legislative plan – which Sen. Elizabeth Warren (D-MA) and Senate Majority Leader Chuck Schumer (D-NY) crafted – calls for student loan cancellation only for federal student loans and only for student loan borrowers who earn up to $ 125,000. (Here’s where Democrats stand on student loan forgiveness). According to the US Department of Education, this proposal would fully cancel federal student loan debt for 36 million student loan borrowers. However, this proposal would still leave millions with federal student loan debt, including any student loan borrower with private student loans. While most student loan borrowers would get life-changing financial relief under this proposal, student loan forgiveness wouldn’t be available to every borrower. Similarly, Biden’s plan to cancel up to $ 10,000 per student loan borrower also would likely focus on federal student loans only. In both Biden’s proposal and the Warren-Schumer plan, Congress would need to cancel student loan debt if Biden doesn’t use executive action for student loan forgiveness. With insufficient congressional support, wide-scale student loan forgiveness won’t happen in the near-term. (That said, here’s how to get approved for student loan forgiveness).
If you do not get student loan forgiveness, this plan will get you student loan relief
If you don’t get wide-scale student loan cancellation and you’re struggling financially, then consider an income-driven repayment plan to help lower your monthly payment. Income-driven repayments can help save you money on federal student loans and provide you with student loan forgiveness. Here’s how to benefit from income-driven repayment plans:
What is an income-driven repayment plan?
An income-driven repayment plan bases your monthly federal student loan payment on your income, family size and state of residence. There are four main plans:
- Income-Based Repayment (IBR)
- Pay As You Earn (PAYE)
- Revised Pay As You Earn (REPAYE)
- Income-Contingent Repayment (ICR)
Income-driven repayment plans are only available for federal student loans (not private debt).
How do I apply for an income-driven repayment plan?
Contact your student loan servicer to enroll in an income-driven repayment plan. You can also complete this form.
Who should complete the income-driven repayment plan form?
Two main groups of student loan borrowers should complete this income-driven repayment plan form:
- Federal student loan borrowers who want to enroll in an income-driven repayment plan for the first time; and
- Federal student loan borrowers who need to make changes to their current income-driven repayment plan.
What’s the application fee for an income-driven repayment plan?
There is no application fee to enroll in an income-driven repayment plan. There are private companies that are not affiliated with the US Department of Education that will try to charge you a fee to complete the application for you. Remember, it’s completely free to enroll, so you don’t have to pay a company to “get student loan forgiveness” or “lower your monthly student loan payment.” If their strategy is to get you access to an income-driven repayment plan, it’s likely they’re offering services that you can do on your own for free.
Which income-driven repayment plan should I choose?
Every borrower will have a unique financial and personal situation. Test what your monthly student loan payment will be under each of the four income-driven repayment plans. Income-driven repayment plans also offer federal student loan forgiveness after 20 years (college loans) and 25 years (graduate loans) of on-time student loan payments. You can choose the income-driven payment plan that maximizes your student loan forgiveness.
Can I switch from one income-driven repayment plan to another plan?
What if my income changes?
Recertify your income and family size every year. This is especially important after the Covid-19 pandemic if you are currently unemployed, changing your family size, or changing your income. Contact your student loan servicer to update your income annually, as this can affect the amount of your monthly student loan payment.
Is an income-driven repayment plan better than forbearance or deferment?
While forbearance or deferment may be short-term options if you cannot afford your monthly student loan payments, they are often less effective than an income-driven repayment plan. Principally, an income-driven repayment plan offers student loan forgiveness, while forbearance or deferment does not. If your student loans are enrolled in forbearance or deferment, this period likely won’t count toward student loan forgiveness until you restart payment. Interest also can accrue, which can increase your student loan balance and total cost of your student loans. In contrast, with an income-driven repayment plan, your monthly student loan payment may be as low as $ 0.
Income-driven repayment plans aren’t for everyone. If you’re focused on saving money and paying off student loans faster, then income-driven repayment plan may not be for you. If you have higher income, it’s also possible that you would pay off your federal student loans before 20 or 25 years, meaning you may not get any student loan forgiveness through an income-driven repayment plan. That’s why it’s essential to undertake all your options for student loan repayment. Here are some popular ways to save money with your student loans:
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