Student Loan Forgiveness and Repayment Plans

What are the best options for paying my student loans off, and can I get them forgiven?

Student loans can be a large debt burden for the average American. As of 2023, student debt is looming around $1.77 trillion and growing, with 92% of that being federal student loan debt.

With this issue being so predominant in our economy today, this raises many questions: what repayment plans are available to get debt forgiven and paid off the most efficiently?

Before getting your college debt forgiven, let’s first dive deeper into the different repayment options available for us to opt into.

There are two main types of repayment plans for government student loans:

Fixed Payment Repayment Plans

These plans are a great option for those who want predictable payment amounts, have higher disposable income to pay off their loans generally faster, and aren’t interested in getting their debt forgiven. These repayment plans base your monthly payment on the total amount you owe on the student loan.

There are three different types:

1. Standard – This is the plan you will automatically be placed in if you don’t choose any other payment option. Under this plan, your loans will be paid off within 10 years with fixed payments.
2. Graduated – This plan also plans to pay off your loans within 10 years but does so with growing payments. Payments start low but increase every two years.
3. Extended – Under the extended plan, your loans will be paid off within 25 years with fixed or graduated payments. You must have over $30,000 in outstanding loans to opt for this payment plan.

Income-Driven Repayment (IDR) Plans

These plans are a great option for those interested in getting their student loans forgiven, who don’t have a high income, and who can agree to pay minimum payments for the next 20 to 25 years.

These plans base your monthly payments on a percentage of your discretionary income. If your income is low enough, you can have payments reduced to $0 a month.

Your discretionary income is calculated by taking the federal poverty guideline for your state and family size, multiplied by 1.5, and subtracting that from your Adjusted Gross Income (AGI). They use discretionary income rather than AGI because the government wants to ensure that low-income families have enough to pay for necessities.

Because your income can change over time, you’ll have to “re-certify” your income and family size yearly, making your payment amounts fluctuate.

These plans allow almost anyone to have their outstanding student debt forgiven as long as they make minimum payments for the specified period for each plan. Depending on the plan, the rest of your student loan balances will be forgiven after 20 to 25 years. If you have debt forgiven, you may be required to pay income tax on the remaining loan balance.

To be eligible for IDR repayment plans, you have to have an eligible student loan type that qualifies for any of the four types you choose from. The four different types are:

• SAVE Plan – Payments are based on 10% of your discretionary income.

If your loans are for your undergraduate degree, you’ll repay them for 20 years and 25 years for a graduate program. After those periods of repayment, your loans will be forgiven.

• PAYE Plan – Payments on this plan are also based on 10% of your discretionary income, but the payment amount is capped so that it never goes above the payments you would’ve made under the Standard repayment plan.

You’ll repay your loans for 20 years before they’re forgiven. To qualify for this repayment plan, you must be a new borrower.

• IBR Plan – Like the PAYE plan, payments are based on 10% of your discretionary income and capped at Standard rates. You’ll also pay on the loans for 20 years before they are forgiven.

However, if you have loans you took out before 2014 and are taking on more, you’ll have to pay 15% of your income and pay payments for 25 years before the loans are forgiven.

Like the PAYE Plan, you’ll have to be a new borrower to be eligible for this repayment plan.

• ICR Plan – With this plan, you’ll have to pay the lesser of 20% of your discretionary income, or what you would pay on a 12-year fixed repayment plan.

You’ll have to pay on the plan for 25 years before being forgiven.

But what if you have a large student debt that you want to be forgiven but don’t want to pay 20 to 25 years of payments?

Public Service Loan Forgiveness (PSLF)

You can get your student loans forgiven with ten years of payments if you qualify for the PSLF.

To qualify for the PSLF, you must be employed by a U.S. federal, state, local, or tribal government (including the military) or a qualifying not-for-profit 501(c)3 organization. This includes doctors, physicians, therapists, teachers, public librarians, firefighters, social workers, and police officers.

You’ll need to work full-time for that organization, have a certain type of student loan, have a Standard or IDR repayment plan, and make 120 qualifying monthly payments.

This is an amazing opportunity for those who qualify because it allows people to save tens of thousands of dollars in debt payments that they can use for other productive areas of their lives.

In Summary

You can choose from two types of repayment plans: Fixed Payment and Income-Driven Repayment. Suppose you want your college debt to be forgiven. In that case, Income-Driven Repayment and Public Service Loan Forgiveness programs allow you to have your remaining loan balance forgiven if you pay the minimum payments for a certain number of years.