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When Are Student Loans Written Off? | Questions Asked and Answered by MoneyZap

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when are student loans written off

Student loan borrowers got great news from the US government, which pardoned $1.7 trillion in student loan repayment. The Public Service Loan Forgiveness (PSLF) program was also created. The new program sought to help 45M federal student loan borrowers repay their loans.

When the COVID-19 pandemic hit in 2020, 30 million people lost their jobs. So the feds suspended interest and monthly payments on federal student loans until August 22, 2022. With this, federal student loan debt will not affect credit or gain interest.

If you can afford to make your payment during the pause, your full payment will go to your loan and none to interest. So now is an excellent time to pay down your debt. Learn more about the actions you can take.

What Is Student Loan Forgiveness?

Student loan forgiveness means you no longer have to pay back what you borrowed for college. It’s an incentive program for those who may have borrowed too much.

Forgiveness means your student loan is canceled. But the government doesn’t erase everyone’s federal loans. Forgiveness usually requires ten years of steady, on-time payments. Forgiveness for private student loans is even more challenging. You can only get one if you are totally and permanently disabled or die.

If you’re fresh out of college or have little idea about what to know about student loans now that you’re out of college, read Exit Counseling for Student Loans.

How Can I Get My Student Loan Written Off or Forgiven?

Note that only loans by the federal government are forgivable. The same goes for Stafford loans, replaced by direct loans in 2010. If you have other federal loans, you might be able to combine them into one direct consolidation loan. This process can also make you eligible.

Loans not from the federal government are not eligible for forgiveness. This exclusion includes loans from private lenders and loan companies.

1. Outstanding Public Service

Public service workers can use the Public Service Loan Forgiveness (PSLF) program. In 2007, Congress made the program to encourage jobs that help the public and reduce student debt. After 120 payments, you can get your loan paid off.

Teachers, firefighters, first responders, nurses, members of the military, and the like can apply for this program. But the program has strict rules, and many people who try to get loans through it are turned down. See related article: Loan Forgiveness Programs for Social Workers.

Federal Perkins Loan Cancellation

Federal Perkins Loans have a different repayment plan because the school is the loan servicer. To apply, contact the financial aid office at the school where you got your loan. You have to work full-time in a job that meets the requirements.

2. Repayment Planning

With an income-driven repayment plan, your student loan payments can change monthly. Depending on your income, you can be forgiven after 20 or 25 years.

  • Pay As You Earn (PAYE) Repayment Plan

Pay on time for 20 years and get your loan paid off. Most of the time, this plan will give you the lowest monthly payment. To sign up for this payment plan, you must show that money is tight. You can stay in the program after the hardship is over, though.

  • Revised Pay As You Earn Repayment Plan

This repayment plan is like the PAYE plan. But, you don’t have to show that you’re having financial trouble to be eligible for it.

  • Income-Contingent, or Income-Based Repayment Plan

Get your loan paid off after 25 years of making payments on time.

3. Discharge by Death, Disability, Etc.

A judge gives loan discharges that can be used for both federal and private student loans. But, discharge is only offered in rare situations like:

  • Disablement for life or death
  • Identity theft of your records
  • Unauthorized loaning by your school
  • Falsification of eligibility documents
  • Unpaid refund (you dropped out of school, and they didn’t give back your loan servicer the money they were supposed to)
  • School closure while you were still enrolled

4. Direct Debt Consolidation

If you have a Federal Family Education Loan (FFEL), you can consolidate it into a Federal Direct Consolidation Loan. By consolidating, you can also be eligible for payment pauses and interest waivers.

The risk of consolidating defaulted loans is that it resets the payment clock. This makes it harder to qualify for 25-year forgiveness in an income-driven plan. Also, if you get discounts from your FFEL lender, you will lose those discounts. If you signed up for AutoPay, you could get a 0.25% interest rate reduction on direct loans but nothing else. Other than that, there isn’t a big downside to consolidation.

In Conclusion: When Are Student Loans Written Off?

There is student loan debt relief for federal student aid loans. Do this by: (1) outstanding public service, (2) repayment planning, (3) discharge, or (4) direct debt consolidation.

If your line of work aligns with public service, option #1 is the best, with its lowest interest payment rates. If not, repayment planning is your next best bet. You can choose to balance your payments according to what you can afford. This way, you can ensure that you can make payments, no matter how small, all the time and reduce paying interest.

You can also consolidate your federal loans into one direct loan to reduce costs. This option is the easiest one you can get without much requirement. In events like death or permanent disability, your student loan debt will also be written off.

MoneyZap also has consolidation loans that you can avail of. Check out our home page and catalog of products on our navigation menu for more information.

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Frank is a graduate of the Master's program in Economics Sciences. He has been passionate about writing in the financial niche. He enjoys discovering new ways to improve personal wealth and sharing them with his readers. In addition, Frank likes to travel and play board games.

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