Your Top Student Loan Forgiveness Questions, Answered
Is student loan forgiveness a scam? No! This article busts common myths and answers the top questions I get from older student loan borrowers.
In my experience, most people don’t understand student loan forgiveness.
And, I understand why.
The student loan landscape is complex and frustrating… but I also see well-meaning people share inaccurate opinions that can lead others astray.
This article clarifies the top 5 questions and myths I hear.
If you’re an older student loan borrower with a high balance, there’s no shame in using relief programs like forgiveness.
Plus, if you don’t qualify for student loan forgiveness, there are still other options available.
At the end of the day, student loan relief is common sense!
By the end of this article, you’ll understand why.
We’ll cover:
Is student loan forgiveness a scam?
Can I still receive student loan forgiveness in 2023?
If I’m approved, do I still have to repay my student loans?
How does student loan forgiveness work?
Can I still get student loan relief if I don’t qualify for forgiveness?
Senior adults are the fastest-growing segment of student loan borrowers, according to the Federal Reserve Bank of New York. Student loan relief options, like forgiveness, can help significantly.
Is student loan forgiveness a scam?
NO.
Though some of Biden’s latest student loan relief programs are under scrutiny - we’ll see what happens in the next few months - there are other legitimate student loan relief programs you can explore:
Federal forgiveness programs
Employer benefits programs
Student loan assistance programs
Refinancing
These options provide aid to millions of Americans, and there’s no shame in using them!
If you need help navigating this space, there are student loan experts and financial advisors that can help.
(And, yes, I’m one of them.)
It’s important to be aware of these options since they can completely transform your financial situation.
That being said, there are still some dishonest people in the world, and it’s important to protect yourself against real scammers.
Here are the red flags.
Red Flag #1: A Promise Or Guarantee of Immediate Forgiveness
The U.S. Department of Education is the only entity that can forgive your federal student loans.
Plus, forgiveness is based on payments you make through a qualifying repayment plan, and these standards are set by law.
Each plan has specific rules that apply to them, so anyone trying to claim they can “negotiate” your federal student loan payments is not telling you the truth.
Instead:
Find a financial advisor who can help you leverage one of these repayment plans within the good graces of the law and show you how they work.
Pay as little as possible towards your loans, but do it the right way.
Red Flag #2: Asking For Your Login Credentials
A trustworthy professional will never ask for your login credentials with studentaid.gov or your student loan servicer.
Under this scam, a “forgiveness company” will offer to pay your student loans on your behalf. You send them your payment, and they claim to make the payment for you.
Really, they’re taking your money and changing your credentials.
They make it impossible for you to log in, and you can bet they’re not actually sending money to your loan servicer.
Instead:
Have a financial advisor walk you through the forms you need to sign. If you’ve had them done for you, review each sheet together and then send these forms in yourself.
You shouldn’t be afraid to get the help you need, but always maintain your ability to communicate directly with your loan servicer.
Student loan forgiveness isn’t a scam, but it’s important to know what real scams look like. Never share your login details or believe promises to “renegotiate” your student loan debt.
Red Flag #3: A Lack of Transparency
The student loan landscape is notoriously complex and hard to navigate. Unscrupulous companies use this to their advantage by keeping you in the dark and taking your money.
Instead:
Make sure your advisor walks you through every part of the process, from how the payment is calculated to how the forms are filled out.
Remember how your math teacher always made you show your work? Your advisor should do the same. This will keep you from getting ripped off.
Red Flag #4: Asking You To Lie On Your Forms
If you’re being asked to lie on the forms you’re signing, that is a serious red flag. The consequences here include steep fines, jail time, and potentially the loss of forgiveness.
This is another reason to review all of your paperwork closely. You may also want to ask yourself, “If they’re lying on my forms… are they lying anywhere else… like to me?”
Instead:
Consult a vetted student loan or financial advisor to walk you through all of your legal options. There are some gray areas you can take advantage of when filling out paperwork, like knowing who to count as a dependent.
You should absolutely use these legal loopholes. But, you should be able to back up your claims and show your reasoning in case you get questioned.
I never condone cheating. There’s a difference between knowing how to leverage the rules and flat-out lying.
A trustworthy student loan expert will walk through the entire process with you. Be sure to review all paperwork together before signing, and send in documents yourself.
Can I still receive student loan forgiveness in 2023?
Yes, forgiveness still exists!
Some programs may be held up in court right now, but others are set in stone and still available to you.
It’s also important to note that these forgiveness options only apply to federal student loans, not private loans.
Biden’s Student Loan “Forgiveness” Program
Biden’s program is technically student loan cancellation, rather than forgiveness. Confusing, I know.
Either way, this program is getting all the headlines for canceling $10,000 of federal student loan debt for most, and $20,000 if you received a Pell Grant.
Right now, this program is being held up in court. The Supreme Court is scheduled to hear the case on February 28, where they will decide the fate of this program.
However, these other forgiveness options are NOT up for legal debate and can provide a bigger impact:
Public Service Loan Forgiveness
Standard Forgiveness
It’s also worth mentioning that you can also receive tax-free, total forgiveness on your federal loans if you pass away or become permanently disabled.
This is called loan discharge, which I cover more in Question 5.
Student loan cancellation and student loan forgiveness can help both younger and older borrowers. For those with Parent PLUS loans, you can qualify for forgiveness by restructuring your loans through a double loan consolidation.
If I'm approved, do I still have to repay my student loans?
Yes, but for less.
Those who gripe, “You took out the loan, so you should have to pay for it!” don’t understand how forgiveness works.
Forgiveness programs are designed to encourage consistent payments and curb loan defaults. You’re rewarded if you commit to the program.
How much you have to pay back, and for how long, will depend on your debt amount and the program you’re in.
I elaborate on this more in Question 4, but for now, here’s a summary of how repayment works for these forgiveness programs.
Forgiveness Repayment Requirements
Under Biden’s student loan cancellation, you’re responsible for paying off any remaining debt after your $10,000 or $20,000 cancellation.
Under Public Service Loan Forgiveness, you’ll make payments under an income-driven repayment (IDR) plan for a total of 10 years - it doesn’t have to be consecutive! If you meet the qualifications, your remaining balance is forgiven tax-free.
Under standard forgiveness, you’ll also need to make payments under a qualifying IDR. These can run for 20 or 25 years. If you meet the qualifications, your remaining balance is forgiven. But, you should know that after 2025 this forgiven balance will be considered taxable income.
There are ways to reduce or delay this tax, which I cover in my free Student Loan Playbook.
Student loan forgiveness programs reward financial responsibility. Rather than defaulting on their loans, borrowers are incentivized to make consistent payments.
How does student loan forgiveness work?
“Student loan forgiveness” is based on several federal programs that eliminate a portion of your federal student loan debt after a set repayment period.
I’ve had clients cut $100K by using student loan forgiveness.
Generally, the higher your federal student loan balance, the more you can receive in forgiveness.
In exchange for a 10-25 year commitment (depending on the program) you can lower your monthly payments based on your adjusted gross income. The remaining balance is forgiven.
This is how forgiveness encourages financial responsibility.
Many older student loan borrowers have made on-time payments for years but could only afford minimum payments. Today, they’re stuck making small dents on interest alone!
Rather than default on their loans (and the government receiving nothing), forgiveness programs incentivize timely payments. It also encourages borrowers to leverage savvy pre-tax deductions.
For many of my clients, these programs have saved their retirement.
First Things First: Loan Type
To qualify for student loan forgiveness, you’ll need federal direct loans.
If you have federal non-direct loans, you’ll need to restructure:
Non-direct federal loans can be restructured through loan consolidation.
Parent PLUS loans can only be restructured through a double loan consolidation.
Once your direct loans are ready, you’ll need to choose the Income-Driven Repayment (IDR) plan that fulfills your forgiveness program’s requirements and aligns with your financial goals.
Income-Driven Repayment (IDR) Plans
IDR plans are based on your current adjusted gross income (AGI) and can significantly lower your monthly payments. Your financial advisor can walk you through every state loophole and pre-tax deduction to reduce your AGI as low as legally possible.
From there, you’ll need to make consistent payments and annually certify your AGI for the duration of the repayment period.
Below, I cover Public Service Loan Forgiveness (PSLF) and standard forgiveness programs.
You’ll need federal direct loans to qualify for forgiveness. If you have non-direct federal loans or Parent PLUS Loans, restructure your loans to qualify for the best IDR plans.
Public Service Loan Forgiveness (PSLF)
Public Service Loan Forgiveness (PSLF) is one way the government incentivizes quality workers to enter the public sector.
Since pay is typically lower than in the private sector, this helps close the gap for teachers, nurses, and other public employees.
PSLF is considered the best forgiveness option for good reason: after a 10-year repayment period, your remaining balance is forgiven tax-free!
Wondering if your job qualifies? Check with your HR department.
Qualifying for Public Service Loan Forgiveness:
First, you’ll need to work full-time in the public sector for the entire repayment period. Think school district, the federal government, the state government, or a non-profit.
Then, your federal student loan balance should match or exceed your adjusted gross income (AGI).
From there, you’ll need to make payments under a qualifying income-driven repayment plan for a total of 10 years (it doesn’t have to be consecutive!) and annually certify your income.
Standard Forgiveness
Standard forgiveness is the next most common forgiveness program. Like Public Service Loan Forgiveness, you’ll need to make payments under a qualifying income-driven repayment plan.
In general, standard forgiveness isn’t as lucrative as PSLF, but it can still be a huge benefit if your loan balance is high enough and you can navigate the student loan rules.
If you don’t qualify for PSLF and have a large loan balance, I highly recommend exploring standard forgiveness.
Qualifying for Standard Forgiveness:
First, there is no employment requirement. To qualify, your total loan debt should be at least 1.25x your adjusted gross income. Ideally, it should be 2x.
Next, you must make timely, consecutive payments for the duration of the repayment period. This can be 20 or 25 years, depending on the IDR plan you’re on.
Finally, the remaining balance is completely wiped away after the repayment period. However, you will have to pay taxes on the forgiven amount.
But, there are two caveats you should know about before deciding against standard forgiveness.
Don’t let fear discourage you from exploring standard forgiveness. Tax-free forgiveness is available through 2025, and you may be closer than you think! Work with a financial advisor to review your situation in detail and help you leverage every possible option.
Caveat #1: New IDR Account Adjustments
If you’ve been paying off your own federal loans, rather than Parent PLUS loans, this will have a huge impact.
Basically, borrowers currently on an IDR plan will be seeing their federal loan payment counts adjusted up, even if these payments occurred when they were not in an IDR or during a long period of forbearance.
This means that federal loan borrowers will start seeing more qualifying IDR payments tallied on their accounts!
This adjustment may even be applied automatically, so many borrowers will eventually notice their payment counts at a very large number.
So, if you’ve had your loans for a long time, there’s a chance you're getting much closer to that 20 or 25-year mark!
Caveat #2: The 2025 Tax-Free Deadline
Through the end of 2025, forgiven amounts under standard forgiveness will NOT be considered taxable income!
This is great news if you’ve been making payments on these loans for a while, especially with the IDR account adjustments mentioned above.
If you don’t expect to reach forgiveness by 2025, you should look ahead and estimate this tax payment to start saving now.
There are also strategies to reduce or avoid this “tax bomb”.
I cover these in greater detail in my Student Loan Playbook, but I also recommend contacting a financial advisor to walk through all of your options together.
The Public Service Loan Forgiveness (PSLF) program was created to support non-profit nurses and doctors, teachers, and other public sector employees.
Can I still get student loan relief if I don't qualify for forgiveness?
If you have federal Direct loans but don’t meet forgiveness requirements, I would take advantage of loan cancellation if it gets approved by the Supreme Court. Then, you should explore the options below.
If you have private loans, it can be a little more challenging to find relief options, but don’t get discouraged. There are still ways to shave thousands off your balance using other strategies.
Option 1: Refinancing
You could save thousands in interest over the life of your loans with a refinancing strategy.
This works by consolidating, or grouping, your loans into a single loan with a lower interest rate.
For example, if you have a 6% interest rate and $100,000 in private loans, switching to a 4% interest rate would save you about $12,000 over the term of a 10-year loan.
Another refinancing strategy is to change your loan duration.
If your top priority is lowering your monthly payments, you could change your loan period from 10 to 20 years.
While this likely results in more interest, you would have the flexibility to accomplish other goals. For example, you could build an emergency fund, pay down high-interest credit cards, or save for retirement.
CAUTION: Refinancing disqualifies you from the PSLF and standard forgiveness programs mentioned above. If you’re pursuing these forgiveness programs, do NOT refinance.
Wondering how refinancing could work for you? Consult a financial advisor.
Besides refinancing, you can also explore student loan assistance programs and benefits. Many companies leverage these benefits to attract and retain talent.
Option 2: Student Loan Assistance Benefits
Whether you have federal or private loans, student loan assistance benefits can also provide relief.
Some employers offer these benefits to student loan borrowers in their company.
In these benefit plans, the employer makes student loan payments on the employee’s behalf up to a certain amount. This differs between companies, but they’re usually leveraged to attract and retain talent.
Check with your HR department or employee benefits coordinator to see if your company offers this.
Option 3: Loan Repayment Assistance Programs (LRAPs)
These student loan assistance programs vary by state and are usually offered by governments or non-profits.
If you meet their program requirements (and jump through a few hoops), the benefits can be massive, sometimes up to $100,000!
Some programs are profession-specific, for example, nurses or physicians.
Others are state-specific, like physicians in Wisconsin or social workers in New York.
You can explore LRAP options by Googling “loan assistance” + your profession or state.
Option 4: Loan Discharge
If you have federal loans, loan discharge can be a useful part of your contingency plan.
Loan discharge provides relief in the event of a health emergency or unexpected death. Forgiveness balances under these circumstances are not taxed, nor are they put on your heirs to pay back.
Like other forgiveness programs, your loans will need to be federal Direct Loans in order to qualify.
Total And Permanent Disability Discharge
If you have a health emergency, you can receive loan forgiveness before your payment period ends. You must show that you are unable to engage in any “substantial gainful activity” due to a physical or mental impairment.
Discharge Due To Death
If you die unexpectedly, your account will be forgiven tax-free.
Some of my clients use this contingency plan to really stretch out their repayment plan. This is because loan consolidation strategies can extend payments up to 50 years!
If you don’t expect to live that long, you could structure your loans so they outlive you…
Disclaimer: I am not suggesting taking any action on your health and well-being. Rather, I encourage you to be proactive when exploring your contingency options.
If you properly structure your federal loans, you can use loan discharge to take care of your loans, tax-free, in case of a health emergency.
Key Takeaways
Leveraging student loan relief is a smart way to reshape your budget and support your other priorities, like saving for retirement.
There are many student loan relief options available:
Biden’s federal loan cancellation
Federal loan forgiveness
Student loan assistance programs
Loan Repayment Assistance Programs (LRAPs)
Refinancing
Loan Discharge
No matter your situation, there’s likely something you can do.
So, don’t let the nay-sayers convince you otherwise!
A trustworthy student loan advisor will be fully transparent with you about your options and have a deep knowledge of student loan policies, rules, and regulations.
If you have questions about anything I covered today, leave a comment below or book a free consultation with me.
At your service,
Erik Kroll