What is a student loan forgiveness program?

student loan

If we think about university debt, the image that comes to mind is that of young people starting their careers, but the truth is that, in the United States, the percentage of older adults drowned in student loans does not stop growing.

Of the $1.5 trillion in student debt accrued by the U.S. population in 2020, people 50 and older owe $340 billion, considerably more than the $47.3 billion owed in 2004, reports the Federal Reserve Bank of New York. York.

These financial obligations can take a toll on retirement savings, warns Ben Reynolds, founder of Sure Dividend, a newsletter for long-term investors. “People who are approaching or have already retired with no outstanding student loans don’t have the burden of these monthly payments, which allows them to put more money into their retirement account and investments,” says Reynolds.

One way to ease some of this burden is through the Public Service Loan Forgiveness (PSLF) program, which forgives borrowers who work in the public sector—such as government, public education, or the police. — repayment of outstanding loans after having repaid the amount equivalent to 10 years of payments. Here’s what you need to know to benefit from Public Service Loan Forgiveness.

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Understanding the requirements

To be eligible for student loan forgiveness, you must have made 120 timely payments for the value specified in the contract, that is, for the total value of the monthly payment due and within 15 days from the due date. Such payments do not have to be consecutive; for example, you can pause payments by deferment or temporary suspension and you will continue to meet the requirements of forgiveness.

Under normal conditions, you would not receive credit for the months in which you do not pay the monthly payment, but during the pandemic, the story changes. To help borrowers during the COVID-19 crisis, student loan charges and interest have been frozen through the 1st. May 2022. Now, these months will count toward PSLF, even if you don’t pay a dime.

You must also have an income-based debt repayment plan, that is, one that determines the monthly payments based on the money you earn. However, even if you haven’t made all of your payments according to an approved plan, you may still be eligible for loan forgiveness thanks to an expansion of the program called “Temporarily Expanded Public Service Loan Forgiveness,” passed by Congress in 2018.

On the other hand, not all types of loans or payment plans are accepted by the program. The only loans eligible for forgiveness are federal Direct student loans. But that doesn’t mean you can’t do anything if you have a Perkins loan or a Federal Family Education Loan (FFEL). You can combine all your loans into one direct consolidation loan, but before you decide you should consider all the pros and cons. In addition, Parent Plus loans are also not directly eligible for forgiveness.

Since PSLF is designed to encourage people to explore public service professions, you must work for employers that meet this criterion for as long as you pay these 120 payments. Generally, if you work for a federal, state, or local government agency or a nonprofit organization, you shouldn’t have a problem. Now, to be safe, fill out the Employment Certification Form every year or at least every time you change employers. Submit the form to the US Department of Education through the FedLoan Servicing website or by fax or mail. They will contact you if your employer does not meet the requirements. You must also be an employee of the approved organization; if you work as an independent contractor, your service does not count.

The road to debt relief is not always straight

While the idea of ​​not having to repay a loan is appealing to anyone with a long history in the public service sector, accessing PSLF benefits is not as easy as it seems.

The US Department of Education reported in September 2019 that of the 90,962 borrowers who had applied for the PSLF program to date, only 845 had been approved, all other applications had been denied or were pending.

Many of the applicants who were not approved were unclear about the program rules and made mistakes along the way. For example, of the rejected applications, about 80% were because the applicant had not repaid a total of 10 years of payments, and about 15% were because they did not have federal Direct student loans.

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If your loan forgiveness application is denied, but you’ve completed all the steps, you may want to seek legal advice, says Jonathan Cohen, co-founder of the law firm Cohen & Winters in Concord, New Hampshire. “A student loan attorney will be able to educate you about your options and advise you of your legal rights,” says Cohen.

By aamritri

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