If you are clamoring for the government to cancel student loan debt, understand that canceling student loan debt is very possible depending on the type of loan cancellation you are intending to get. Sit back to discover the details about the loan cancellation. Let’s dive in!
Overview of Student Loan Forgiveness
The terms forgiveness, cancellation, and discharge mean nearly the same thing, but they’re used in different ways.
If you’re no longer required to make payments on your loans due to your job, this is generally called forgiveness or cancellation.
If you’re no longer required to make payments on your loans due to other circumstances, such as a total and permanent disability or the closure of the school where you received your loans, this is generally called discharge.
Although loan cancellation is a limited option, it is the most complete way to deal with student loan debt.
This means that it’s a good idea to review the various cancellation programs to see if you qualify. Let’s see how loan cancellation really works.
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How Student Loan Cancellation Works
Canceling student debt requires individuals at the lower end of the income spectrum to pay off the debt of college graduates who, statistically, are likely to out-earn them.
Nearly two-thirds of adults do not hold bachelor’s degrees today. A bachelor’s degree is worth $2.8 million on average over the course of a lifetime, with degree holders earning 74 percent more than individuals with just a high school diploma, according to research by Georgetown University.
Those earning professional degrees (for attending law school or medical school, say) are likely to benefit even more. Earning 61 percent more on average than someone with a bachelor’s degree over their working lifetime.
Forgiveness would also punish responsible borrowers who worked carefully to pay off their debts. Sacrificing dinners out or living in modest apartments to make good on their loans.
When borrowers take out federal student loans, they’ve signed a contract with the American taxpayer saying they will repay their debts.
Borrowers have an obligation to keep that promise. If Congress and the Biden administration want to help, they should pursue policies that actually drive down the cost of tuition rather than shifting debt payments onto taxpayers.
Types of Loan Cancellation, Forgiveness, and Discharge
The summaries below offer a quick view of the types of forgiveness, cancellation, and discharge available for the different types of federal student loans.
1. Public Service Loan Cancellation
PSLF forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer.
2. Teacher Loan Cancellation
Available for Direct Loans and FFEL Program loans: If you teach full-time for five complete and consecutive academic years in a low-income elementary school, secondary school, or educational service agency, you may be eligible for forgiveness of up to $17,500 on your Direct Loan or FFEL Program loans.
3. Closed School Cancellation
Available for Direct Loans, FFEL Program loans, and Perkins Loans: If your school closes while you’re enrolled or soon after you withdraw, you may be eligible for discharge of your federal student loan.
5. Perkins Loan Cancellation and Discharge
Available only for Federal Perkins Loans: You may be eligible to have all or a portion of your Perkins Loan canceled (based on your employment or volunteer service) or discharged (under certain conditions). This includes Perkins Loan Cancellation.
6. Total and Permanent Disability Cancellation
Available for Direct Loans, FFEL Program loans, and Perkins Loans: If you’re totally and permanently disabled, you may qualify for a discharge of your federal student loans.
7. Cancellation Due to Death
Available for Direct Loans, FFEL Program loans, and Perkins Loans: Federal student loans will be discharged due to the death of the borrower or of the student on whose behalf a PLUS loan was taken out.
8.Cancellation in Bankruptcy (in rare cases)
Available for Direct Loans, FFEL Program loans, and Perkins Loans: In some cases, you can have your federal student loan discharged after declaring bankruptcy. However, discharge in bankruptcy is not an automatic process.
9. Borrower Defense to Repayment
Available for Direct Loans: You may be eligible for discharge of your federal student loans based on borrower defense to repayment if you took out the loans to attend a school and the school did something or failed to do something related to your loan or to the educational services that the loan was intended to pay for.
The specific requirements to qualify for borrower defense to repayment discharge vary depending on when you received your loan.
10. False Certification Cancellation
Available for Direct Loans and FFEL Program loans: You might be eligible for a discharge of your federal student loan if your school falsely certified your eligibility to receive a loan
11. Unpaid Refund Cancellation
Available for Direct Loans and FFEL Program loans: If you withdrew from school and the school didn’t make a required return of loan funds to the loan servicer, you might be eligible for a discharge of the portion of your federal student loan(s) that the school failed to return.
How Certain is the Proposed Cancellation?
There’s also the question of how loan forgiveness could move forward: Will it be through Congress or executive action or not at all?
Biden’s transition team, on Jan 8, reaffirmed his support for $10,000 of forgiveness per federal student loan borrower through Congressional action. This indicates executive action could be an unlikely avenue for the President-elect to take.
Experts say any executive action could face lawsuits or be subject to judicial review, which would leave the fate of an order for forgiveness in the hands of the Supreme Court.
The Fate of Debtors and Payments Restart
Biden proposed his forgiveness measure as part of COVID-related relief, but even more pressing relief is on the way. Biden extended the current payment pause on federal student loans through Sept30 on the day he took office.
The payment pause, known as forbearance, has been in effect since March as part of the first coronavirus relief bill. Former President Donald Trump extended the relief through the end of the year and then again until Jan. 31.
Whenever payment restarts, borrowers in continuing financial distress may have difficulty.
Doug Webber, associate professor of economics at Temple University, says he’s worried about the pitfalls of going “zero to 60” in one day with reinstating loan payments for a population that isn’t ready.
While borrowers await the fate of forgiveness, they should contact their servicer to get enrolled in an income-driven repayment plan if they won’t be able to afford their payments when they eventually restart.
These plans set payments at a portion of their income and can be as low as zero if they’re unemployed.
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The Bottom Line
Loan cancellation can be achieved if it falls in the loan cancellation type category, but in general, loan cancellation seldom happens and doesn’t always resurface, so you might need to be ready with the right strategy to raise a repayment.
Let this article guide you. Share it to your friends as well, and don’t forget to leave a comment at the comment section. Good luck!