Is Student Loan Forgiveness Fair?
Updated : July 26th, 2022
Student loan forgiveness is a popular topic of conversation and media coverage – especially with student loan payments put on hold during the height of the COVID-19 pandemic.
The moratorium is scheduled to expire on Aug. 31, 2022, and student loan payments will resume.
What Is Student Loan Forgiveness?
When it comes to currently outstanding federal student loans, loan forgiveness is exactly what it sounds like: it’s the federal government canceling out the debt so that it doesn’t have to be repaid at all. Depending on the stipulations of a loan forgiveness initiative, you may be required to pay back only a portion of your student loan debt, or none at all. To date, President Joe Biden’s administration has forgiven $25 billion in student loan debt for more than a million borrowers and may announce additional student loan forgiveness initiatives in the coming months.
The Biden administration is said to be considering several different student loan forgiveness structures that range from forgiving $10,000 of an individual borrower’s student debt all the way up to canceling $50,000 of student debt. Depending on which, if any, of these options the administration moves forward with, anywhere from 15 to 36 million people who owe money on their student loans could receive some measure of relief.
Another option on the table for easing the overall student debt burden is lowering student loan interest rates to 0%, which has been recommended by Congress.
Is Student Loan Forgiveness Fair?
Many Americans carrying other types of debt find the concept of student loan forgiveness inherently unfair. However, proponents tout its ability to both reward and incentivize those who pursue higher education – which ultimately strengthens the middle class.
There’s no denying the intense weight of student debt that many college graduates carry for decades. Roughly 45 million student borrowers are currently responsible for paying back $1.7 trillion in student loan debt. For today’s college graduates struggling to make student loan payments while also juggling the pressures of high gas prices and inflation, student loan forgiveness is an important financial lifeline.
Types of Student Loan Forgiveness
Student loan forgiveness is available in five basic categories:
1. Teacher Loan Forgiveness
Teacher loan forgiveness is designed to incentivize teachers and other educational professionals for working in areas that serve low-income students. If you work in an area for five consecutive academic years, you may be able to have at least a portion of your student loan debt forgiven. You must also meet other eligibility criteria. Most eligible candidates can have up to $17,500 of their student loan debt canceled.
2. Public Service Loan Forgiveness (PSLF)
Public service loan forgiveness affects those who work for government or non-profit organizations. Under this debt forgiveness program, borrowers who are employed in public service roles may qualify for forgiveness of their remaining balance of a direct loan after they have completed 10 years of payments.
3. Income-Driven Repayment Plans
If you’re repaying debt through an income-driven repayment plan, your remaining balance can be canceled once you reach a certain number of payments. Income-driven repayment plans are designed to tailor monthly loan payments according to a borrower’s level of income and the size of the borrower’s family. Subsequently, the lower a borrower’s income and the larger the borrower’s family, the longer the term of the loan becomes.
4. Military Service
The U.S. government, in recognition of the sacrifice and service of America’s military, also offers student loan forgiveness options for those who have a history of military service. Both the U.S. Department of Education and the U.S. Department of Defense offer special benefits and repayment options for military members.
5. Segal AmeriCorps Education Award
AmeriCorps is an organization that allows recent college graduates to connect with non-profit and public service-oriented organizations to solve some of our nation’s toughest problems. Once a recent graduate has completed a service term through any one of AmeriCorps’ programs, they are eligible for a tuition award that can be used to pay off existing student debt.
Deferment During Financial Hardship
What is deferment?
A student loan deferment is a temporary suspension of payments due on a student loan that often is granted during financial hardship. When a student loan is deferred, interest generally does not continue to accrue during the deferment period, as long as the loan is at least partially a subsidized federal student loan.
Non-federal student loans will continue to accrue interest during a deferment period, including those issued by private lenders. For this reason, some borrowers choose to continue making interest payments during a period of deferment, even though no payment is required.
Deferment may be a good option for you if you find yourself in financial difficulty, but make sure you understand how the deferment will affect your overall balance. If interest accrues on your student loan while it’s deferred, then your loan balance will be even larger once your period of deferment is over.
Should I Consider Bankruptcy?
For many borrowers who find themselves in financial straits, filing bankruptcy can be an effective option that moves them toward financial health. While bankruptcy has traditionally had a negative stigma, more and more borrowers are learning that bankruptcy can provide the opportunity for a fresh start. Filing for bankruptcy can help protect future earnings and wealth, and depending on the type of bankruptcy you file, there may be no cap on the debt you can claim and no repayment plan.
While student debt may not always be covered under a bankruptcy filing, it may help you clear out other debt that is making your life difficult and keeping you from meeting your financial goals. Keep in mind, though, that declaring bankruptcy is a major decision. While it offers tremendous benefits, it also comes with some costs, including a hit to your credit score. Before you decide whether bankruptcy is right for you, you should visit with a trusted and qualified bankruptcy attorney, who can outline your options and assist you in choosing the path that makes the most financial sense for your particular situation.
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