Guide to Student Loan Forgiveness

The cost of post-secondary education has steadily increased over the past three decades. As of 2022, over half of college and university students leave school with debt. On average, each borrower in the United States owes $28,950, contributing to a total student loan debt of $1.75 trillion. The bulk majority of loans (92%) are federal — the remaining are private.

Those carrying federal student loan debt may be eligible for loan forgiveness. If loan forgiveness applies to you, this guide tells all.

Table of Contents

What Is Student Loan Forgiveness?

Since 1980, after accounting for inflation, the total cost of a four-year college program has nearly tripled. In addition, federal support has decreased. For example, Pell Grants used to cover 80% of the cost of a four-year college degree. Today, it covers approximately one-third.

Those from low- and middle-income families have no choice but to borrow money if they’d like to get an education. These concerns have sparked debate among political parties in recent months, resulting in Biden’s three-part plan to cancel $10,000 of student debt for low- to middle-income borrowers. This initiative was announced after the Public Service Loan Forgiveness (PSLF) program, designed for people who work in public service or for non-profit organizations.

A Closer Look at Biden’s Student Loan Forgiveness Plan

In August 2022, President Joe Biden announced his plan to cancel billions of dollars in student debt. For example, the government would cancel up to $10,000 for borrowers making less than $125,000 a year or $250,000 for married couples. Students receiving Pell Grants could see up to $20,000 of their debt canceled.

To put this into perspective, if $10,000 in student debt were eliminated for every borrower, it would cost the U.S. government $321 billion — although some estimates are as high as $500 billion. Since this announcement, there has been a significant amount of legal backlash. In October, Biden’s plan survived two significant legal challenges. However, pressures have continued to build, and as of this writing, the outcome is uncertain.

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Types of Federal Student Loans

The U.S. Department of Education is your lender when lending from the government. There are four loan options. Understanding which category you fall under is important when planning to seek forgiveness. Include this in the information you provide your loan servicer.

For example:

Direct Subsidized Loans
Direct Unsubsidized Loans
Direct PLUS Loans
Direct Consolidation Loans

Now, for forgiveness — the following student loan forgiveness programs are offered through the U.S. Department of Education.

Public Service Loan Forgiveness (PSLF)

As discussed above, those employed by a government or not-for-profit organization may be eligible to receive loan forgiveness. After making 120 qualifying monthly payments while working full-time for a qualifying employer, PSLF forgives the remaining balance.

Closed School Discharge

This option is available for those carrying Direct Loans, Perkins Loans, and FFE Program loans. If your school closes when you’re enrolled or shortly after you withdraw, you could be eligible for discharge.

Teacher Loan Forgiveness

This option is available for Direct Loans and FFEL Program loans. If you teach full-time for five consecutive academic years in a low-income elementary school, secondary school, or educational service agency, you could receive forgiveness of up to $17,500.

Total and Permanent Disability Discharge

If you are permanently disabled, you could qualify for a discharge of your federal student loans.

Other options include:

What’s the Difference Between Cancellation, Forgiveness, and Discharge?

The terms cancellation, forgiveness, and discharge mean nearly the same thing. However, they are used in different ways.

Cancellation or forgiveness is when you are no longer required to repay a loan (or part of a loan) because of your job. Examples include teacher loan forgiveness and public service loan forgiveness.
Discharge is when you are no longer required to make payments on loans because of other unique circumstances, such as permanent disability. The final outcome will depend on the circumstances.

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Pros and Cons of Student Loan Forgiveness

The concept of eliminating student loan debt has sparked plenty of debate. College is creating crippling debt, so what are the advantages and disadvantages of wiping this debt out?

The pros of a student loan forgiveness program include the following:

Greater financial freedom for borrowers, allowing them to pursue other investments, including real estate.
If borrowers spend that money outside of their loan repayment plan, they can help stimulate the economy.
Reduced inequality, as the government has helped billionaires and corporations in the past.

On the flip side, the cons include the following:

Forgiveness programs are expensive and would affect federal taxpayers, even if they don’t have loans.
Since these taxpayers wouldn’t be receiving anything, this brings up the inequality issue from a different perspective — the same is true for borrowers who worked hard to repay their loans in the past.
Paying off these debts doesn’t address the underlying issue of inflated higher education costs.
Some believe student loan forgiveness is an abuse of the loan system.

The pros and cons will vary significantly based on who you ask and how student loan forgiveness affects them. Some will be very much “pro,” while others will be firmly against it. There are also many who see both sides of the coin. For example, removing student debt would help improve consumer spending while stimulating new business growth. However, this would only be a temporary bandage. It’s possible to be mindful of both sides, which is a big step in the right direction. Some may not fully support this initiative but still see that something needs to be done to break this cycle.

Bottom line: A temporary solution that does nothing to prevent the next generation from accruing similar debt.

How to Apply for Student Loan Forgiveness

The first step is to contact your loan servicer. If you are currently repaying a Perkins Loan, contact the school that issued the loan or the loan servicer designated by the school.

Once in contact with your loan servicer, discuss your personal circumstances. Ask what your loan payments will look like during the application review process. Depending on your terms, you may not have to make any payments during the review period. Communication is crucial so that you can effectively plan ahead.

The Department of Education launched its student loan forgiveness application on October 17, 2022. Borrowers will have until December 31, 2023, to complete their application as long as the program moves forward. Currently, it is paused. Those who have already applied do not need to reapply. StudentAid.gov will hold prior applications. Those interested are encouraged to subscribe for updates.

Other programs remain open, including PSLF. Please Complete Public Service Loan Forgiveness (PSLF) & Temporary Expanded PSLF (TEPSLF) Certification & Application (PSLF Form) once you are ready to apply for PSLF. View all associated forms and instructions.

Grants and Additional Financial Options

Unlike loans, grants do not need to be repaid. They can come from the federal government, your state government, your college or career school, or a private or non-profit organization.

The U.S. Department of Education offers several grants to students attending four-year colleges or universities, community colleges, and career schools, including:

The above grants are typically offered to those in financial need.

Several organizations offer scholarships and grants, including corporate businesses and the U.S. Department of Veterans Affairs. For example, Amazon offers a $40,000 scholarship to undergraduate Engineering or Computer Science students.

Additional Resources

To find out more about student loan forgiveness and financial support options, check out the following resources: