Update On Student Loan Forgiveness in 2024
Student loan forgiveness can be quite confusing. Here is a brief overview:
Back in 2020, the Biden administration announced a plan to forgive $10,000 per debtor, for virtually the entire student debtor population – about 44 million borrowers. (The amount would be $20,000 if a student had been poor enough originally to also receive a Pell Grant.)
A married couple with student debts could be earning $250,000 a year today – but they would still have received $10,000 apiece in loan forgiveness. This might harvest votes in wealthy suburbs, but it seemed excessive to Republican opponents.
This plan relied on the Health and Economic Recovery Omnibus Emergency Solutions Act, or HEROES Act – a 2002 program to alleviate loan-related hardships for soldiers and reservists serving in Iraq and Afghanistan. The Biden administration argued that the COVID-19 emergency gave it the current authority to give virtually everyone loan forgiveness.
However, Biden’s program was struck down by the US Supreme Court in 2023. According to the Court, only Congress has the power of the purse; spending hundreds of billions of dollars to cancel so much debt would require an Act of Congress.
The Biden administration was undaunted, however. It has enacted numerous smaller debt relief plans throughout the 2020-2023 period.
Largely staying under the media radar, more than 6 million eligible individuals have received full or partial loan forgiveness, totaling $127 billion in debt cancellation.
Generally, these programs have been enacted for just one sympathetic group at a time.
Note: The total amount of student debt in America is approximately $1.7 trillion…so the recent forgiveness is not extreme. (It just seems that way, due to all the billions involved.)
Also: About $130 billion of the total student debt consists of private loans from banks.
This debt is rarely affected by any of the programs discussed here – although many private loans do contain death and disability forgiveness.
Biden’s Debt Forgiveness Programs 2020 -2023
#1 – Borrower defense settlements
The administration wanted to address the harm done to students by the most predatory for-profit colleges– the ones that gave shabby education and often closed without warning.
Students who had attended these schools frequently had their loans totally forgiven, even if the students hadn’t submitted a borrower defense claim. The largest blocks of forgiven loans came from ITT, DeVry University, and Corinthian Colleges.
For example $5.8 billion of debt for Corinthian College students was forgiven.
Overall, these actions have resulted in $22.5 billion in relief for more than 1.3 million borrowers.
#2 – Total and permanent disability discharge.
Anyone who cannot work due to being totally and permanently disabled, physically or mentally, can qualify to have their remaining student loan debt canceled.
Once your loans are discharged, the government may monitor your finances and disability for three years. If you don’t meet requirements during the monitoring period, your loans may be reinstated.
#3 – Discharge due to death.
If you die, your federal loans will be discharged once a death certificate is submitted to your loan servicer. Your parent’s PLUS loans used to pay for your schooling will also be discharged if the parent who holds the loan or you die.
#4 – Income-Driven Repayment Forgiveness:
In this program, a student who made regular payments for 20 years was supposed to have their debt forgiven.
However: as of January 2021, only fifty borrowers had ever received IDR student loan forgiveness after more than 20 years of repayment.
Loan servicers overall did a terrible job. Many borrowers could not obtain an accurate count of the number of monthly payments that qualified for their loan forgiveness.
In April 2022, the Department of Education began to audit the entire program. The goal was to address past inaccuracies and give student debtors full credit for their repayments.
Catching up to the honest numbers has resulted in nearly $46 billion in relief to more than 930,000 borrowers.
The debtors who had a 20-year schedule, had actually been paying for 20 years. They just weren’t getting the credit that was due.
Put another way, the Biden administration was not blindly spending public money. An honest program would have spent most of the money already, as borrowers reached their 20-payment limits.
#5 – Public Service Loan Forgiveness
This program was first enacted in 2007 and was offered to anyone currently working in the government, or in a non-profit.
After 10 years of on-time payments, student debt was supposed to be forgiven.
But once again — the rules for forgiveness were inconsistently applied, and in some cases virtually incomprehensible. The for-profit loan servicing companies were again the worst offenders
As of 2020, only 7,000 people in fifteen years had received debt forgiveness through Public Service Loan Forgiveness. An incredible 99 percent of borrowers who applied for forgiveness under PSLF were being rejected due to administrative failures, servicer errors, unclear information, and other issues. Very little was done to correct this under Republican Education Secretary Betsy DeVos.
The Biden-Harris administration systematically began reviewing denied applications. The Department was authorized to count payments that should have been eligible.
This led to a huge number of approvals for full 10-year forgiveness..The total was $62.5 billion for nearly 872,000 borrowers.
Once again ….The debtors generally were only given the relief they had actually earned.
(However, the struggle is not over. Unreliable loan servicing companies like MOHELA are still involved in processing loan forgiveness – and doing the same terrible job.)
#6 – A New Program called SAVE was made available to debtors – which dramatically cuts monthly payments
The SAVE plan is an income-driven repayment program, which ties borrowers’ monthly payments to their income and household size.
But SAVE has more generous terms than previous plans. This repayment plan caps your payment at 5% to 10% of your discretionary income – which is defined as 225% of the poverty line,
For example, 225% of the Poverty Guideline amount for a single person is $32,800. If your annual income is equal to or less than $32,800, then your discretionary income is $0 –which means that your monthly payment will be $0. The same is basically true for a family size of four with an annual income of $67,500 or less.
Another example: a family of four with an $80,000 income and $80,000 in undergraduate debt would pay nothing on the first $67,500 it earns due to the exemption — and 5% on the remaining $12,500. This comes out to payments of $625 per year, or only $52 per month.
This is getting close to free college for middle-income families.
- Nearly eight million borrowers have enrolled in the plan so far, and about half of them now have a monthly payment of $0. An additional million borrowers pay less than $100 monthly.
Caution is needed, however:
Several Republican-led states have filed separate lawsuits to block the SAVE program — including the states that challenged Biden’s original $400 billion debt cancellation plan.
The lawsuits argue that the administration has again exceeded its authority, and that the repayment plan is just another backhanded attempt to wipe debts clean.
Of course, many liberals (including me) think it is a good thing to wipe debts clean. We believe that education is best funded by grants and other tax dollars. We believe that the government should never be charging interest to any of its citizens, for any reason.
If a program is worthwhile, then raise taxes. Don’t try to sneak in loans as a back-door funding method.
We have seen the damage of relying on loans for the last 20-30 years.
Additional Student Debt Reductions Proposed in 2024
Reduction #1 – Forgiveness of accrued interest
This addresses a massive problem with student loans – namely, ballooning loan balances. There are millions of borrowers who owe more than they originally borrowed – even while making payments!
With any income-driven repayment plan – -including the SAVE plan, which adjusts monthly payments to keep them affordable — the payments can be so low they don’t cover your monthly interest charges, which continue to build up.
For example, if you qualify for a $5 monthly payment under IDR – or if you just miss several payments, for any reason — the loan balance could balloon over time.
It is worth going through a hypothetical loan history, for a student who borrowed $50,000 at 5% interest in the first decades of the 2000’s. Assume that this student had never heard of income-based repayment, and of course, they did not have access to the SAVE program.
First, they probably postponed making any payments while they were actually taking classes. That is a very common practice….but it can add $6,458 to the original balance of $50,000 over four years, due basically to accrued interest.
Not everyone finds work right out of school, and some people are eligible to again postpone their student loan payments. One way to do that was through an “economic hardship deferment.” If they requested the maximum amount of time under that option, they could put off making payments for three more years.
However, doing so will slap another $8,469 onto their debt. The balance is now $64,927.
Deferments aren’t the only way you can take a break from your student loan payments; you can also put your loans into “forbearance.”
Nearly 70 percent of people who began repaying their student loans in 2013 had their debt for at least a period of time in forbearance, according to a report by the Government Accountability Office.
If they had the debt in forbearance for three years, yet another $9,739 would be tacked on to the balance.
Although they originally borrowed $50,000, they now owe $74,666.
And it could get worse….If they stopped paying student loans through default, they could expect your balance to grow even faster.
“Consolidation” or “rehabilitation” — the ways student loan borrowers can rescue their debt from default — are processes that can come with hefty fees.
After rehabilitation, for example, the balance would grow to $97,045 from $78,083, after interest, collection fees, and late charges.
By now, the loan balance has nearly doubled from what was originally borrowed.
(If an individual went through this process and defaulted again, their balance would grow even more.)
Not all cases are this awful…but still, over 25 million people owe more money than they originally borrowed, despite making payments.
The new Biden-Harris plan would cancel up to $20,000 of unpaid interest on eligible borrowers’ loans, regardless of the borrower’s current income.
Plus; For single borrowers making under $120,000 per year and who are enrolled in the Education Department’s income-based repayment plans, these borrowers “would be eligible for waiver of the entire amount their balance has grown since entering repayment.”
And it could get even better:
Borrowers who were eligible for a program such as Public Student Loan Forgiveness, IDR plan. or SAVE but those who have not applied – would be eligible for the cancellation of all debt in excess of what they borrowed.
In the example above, the debtor would receive a cancellation of $47,405 — automatically – even if they haven’t enrolled in the qualifying programs.
The final rules in this area should be out by the end of 2024. We will need to see whether debtors will have to apply for this forgiveness, or whether it will be granted automatically.
Reduction #2 – Forgiveness for people experiencing hardship in paying back their loans
The Biden team will be releasing additional proposed rules to provide student loan forgiveness to borrowers experiencing financial hardship. The proposed rules will include provisions for automatic forgiveness for borrowers at a “high risk of future default” -i.e., those who show hardship due to high medical and caregiving expenses, are over a certain age, have declared bankruptcy, or are on food stamps and public assistance.
(Forgiveness of loans for persons over age 65 should have happened years ago, in my opinion. No other country burdens its elder citizens with loan collections. The hideous “Parents Plus” loans were only enacted to tap into parental assets when student-borrowers were ‘tapped out.’)
Meanwhile, there are over 80 specialized debt programs for certain professions.
Teacher Loan Forgiveness…… Teachers employed full-time in low-income public elementary or secondary schools may be eligible for Teacher Loan Forgiveness after working for five consecutive years. They can have up to $17,500 in federal direct or Stafford loans forgiven. To qualify, teachers must have taken out loans after Oct. 1, 1998.
Loan forgiveness for nurses……. Nurses shouldering student debt have several options for student loan forgiveness: Public Service Loan Forgiveness, Perkins loan cancellation, and the NURSE Corps Loan Repayment Program, which pays up to 85% of qualified nurses’ unpaid college debt.
Military student loan forgiveness and assistance….. Military personnel in the Army, Navy, Air Force, National Guard and Coast Guard may qualify for their own loan forgiveness programs. In the National Guard, for example, qualifying soldiers and officers could receive up to $50,000 to pay off federal student loans through the Student Loan Repayment Program.
Additional student loan repayment assistance programs (LRAPs): There may be other national or organizational student loan repayment assistance programs offered for public service professions. The National Institutes of Health, for example, offers up to $35,000 in debt assistance annually to health professionals who are appointed by the institutes to conduct research. Finally, some private employers will offer loan forgiveness — although the amounts forgiven are normally not as dramatic as in the public programs.