Want student loan forgiveness? Here’s how to get $207 billion of your student loans forgiven.
Here’s what you need to know.
Student Loan Forgiveness
If you haven’t heard, President Trump proposed to end a popular student loan forgiveness program. In his latest annual budget, Trump’s proposed several changes to student loans as part of a $5.6 billion cut in funding to the U.S. Education Department. As part of his plan to rein in federal spending, Trump called for ending the Public Service Loan Forgiveness program, a federal program that forgives federal student loans for borrowers who work full-time for a qualified public service or non-profit employer. The proposal, which requires congressional approval, could save the federal government billions, but also could adversely affect impact public servants, including members of the U.S. Armed Forces, police officers, firefighters, first responders, prosecutors, public defenders and others.
So, Does This Mean No More Student Loan Forgiveness?
Not necessarily. A new report from the Congressional Budget Office shows that student loan borrowers are expected to receive $207 billion of student loan forgiveness from 2020 to 2029. How can you take advantage of this student loan forgiveness? The answer is income-driven repayment plans, which are federal student loan repayment plans that tie your monthly student loan payment to your discretionary income, family size and state of residence. Income-driven repayment plans can reduce your monthly payment, even though interest still accrues on your student loan balance. Unfortunately, income-driven repayment does not mean you get a lower interest rate on your student loans. While your total balance will grow, the federal government will forgive your federal student loans after 20 years (undergraduate loans) or 25 years (graduate school loans) of on-time payments.
Who Benefits? The Surprising Answer
The student loan debt story has been portrayed primarily as borrowers struggling to repay their college student loans. However, the report showed some statistics that may surprise you. Projected federal student loan debt forgiveness will primarily benefit borrowers with student loan debt from graduate school and professional schools (not college). The federal government is expected to forgive $167.1 billion of graduate school student loans compared with $40.3 billion of undergraduate student loans. This means that graduate school borrowers — who, on average, earn higher income than their college counterparts — will receive federal student loan forgiveness at a 4x rate compared to their undergraduate counterparts.
What’s The Future Of Income-Driven Repayment?
Trump has not proposed to eliminate income-driven repayment or all student loan forgiveness. Rather, Trump believes that reducing the number of student loan repayment plans will simplify student loan repayment and help borrowers pay off student loans faster. Trump has proposed a single income-based repayment plan that would forgive federal student loans for undergraduate borrowers after 15 years of student loan payments. Like current income-driven repayment plans, borrowers under this proposed plan likely would be liable for income taxes on the amount of student loan forgiveness they receive.
Income-driven repayment and public service loan forgiveness are two options, absent any defunding, to help you receive student loan forgiveness for your federal student loans (not private student loans). Other options to save money and organize your student loans, respectively, include: