If you’ve got federal student loans, you’d probably agree that getting them forgiven would be a dream come true.
But while several federal programs promise loan forgiveness, you’ll likely have to wait years before you see your balance discharged. And unfortunately, one of the best-known of these — Public Service Loan Forgiveness (PSLF) — has seen most have their applications denied despite working a full 10 years in the public or nonprofit sectors.
So if you’re counting on loan forgiveness, when do these programs actually start paying (if ever)? Is student loan forgiveness, especially PSLF, a real thing? Or should borrowers look for alternative ways to manage their student loan debt?
Read on to find out.
How long does it take to get student loan forgiveness?
The government offers several loan forgiveness programs in exchange for qualifying service. The much-searched PSLF will (in theory) forgive your remaining loan balance after 10 years of service in an eligible organization, such as a nonprofit or government agency, and 120 qualifying payments.
Teacher Loan Forgiveness is another popular program. Through this program, qualifying teachers receive either $5,000 or $17,500 in loan forgiveness (depending on what subject you teach), typically after five years in an eligible school. This program promises to help you with your student loans sooner than PSLF does, but it only offers partial forgiveness, rather than full forgiveness.
Meanwhile, income-driven plans, such as Income-Based Repayment (IBR) and Pay As You Earn (PAYE), forgive whatever remaining balance you have after 20 or 25 years of on-time repayment. Note that you will typically still have to pay taxes on the forgiven amount.
While these federal forgiveness programs typically require five or more years of repayment before offering forgiveness, state-run loan repayment assistance programs (LRAPs) often offer rewards much sooner. LRAPs assists doctors, lawyers, nurses, teachers and several other qualifying professionals, and they usually only require a couple of years of work in exchange for the award.
What’s more, you can often use that money toward both private and federal student loans. If you can qualify, an LRAP could offer financial relief even sooner than a federal student loan forgiveness program.
What’s going on with the PSLF program?
If you’ve seen PSLF in the news lately, you know that the road to loan forgiveness hasn’t been so smooth for a lot of borrowers.
PSLF started in 2007, with the first borrowers becoming eligible for loan discharge in 2017. But many of them found out they had been misinformed them about the requirements of the program. For example, some had their applications denied because they weren’t on the right repayment plan — you have to be on an income-driven plan, as graduated and extended repayment plans don’t count.
What’s more, many borrowers didn’t realize they had to submit an Employment Certification Form every year to remain eligible, getting verifying signatures from an authorized official.
According to Department of Education data from September 2018, more than 41,000 student loan borrowers had applied for PSLF, but only 206 had received forgiveness so far.
Fortunately, the Department of Education made some moves to address this issue in early 2018 with the introduction of Temporary Expanded PSLF (TEPSLF). This program set aside $350 million for borrowers who had been on the wrong repayment plan.
Hopefully, the requirements for PSLF will be more clear going forward so that public service workers can receive loan forgiveness after 10 years of service, rather than just running into a lot of red tape.
Are the days of the PSLF program numbered?
Although there are many hoops to jump through, PSLF does offer a path to student loan forgiveness. But since it’s a federal program, it could still be eliminated in years to come.
“The PSLF program has been under threat for the last several years by policymakers concerned about the potential cost,” said Nancy Conneely, director of policy at AccessLex Institute. “Most recently, both the Trump administration in its fiscal year 2019 budget request and House Republicans in the PROSPER Act proposed eliminating PSLF.”
The PROSPER Act didn’t pass, and with the Democrats now in control of the House of Representatives, passage seems less likely. But with this controversy over funding, no one can guarantee that PSLF will stick around forever.
Despite this, however, Money Crashers financial expert David Bakke is hopeful about the future of the program.
“Going forward, I think the program will finally begin to kick in for a lot of borrowers, the forgiveness numbers will go up, and people will realize what an excellent program it is to help defray the cost of college,” said Bakke. “You might even see more people interested in careers in public service because of this program’s benefits.”
Travis Hornsby, CFA and founder of the Student Loan Planner, is also optimistic about the program, at least for now.
“I’m actually seeing very encouraging signs, such as borrowers who have received forgiveness getting refunds for overpayments,” he said. “One woman I spoke with got 16 payments given back to her. I didn’t expect that in my wildest dreams.”
PSLF remains subject to the changing tides of politics, but as of now, it is still a viable option for student loan borrowers committed to careers in public service.
Consider alternatives to loan forgiveness programs
While some finance experts are hopeful about the future of PSLF, Joshua Hastings, founder of student loan blog Money Life Wax, encourages borrowers to consider alternatives, just in case.
“Borrowers should have a backup plan when it comes to using PSLF,” Hastings said. “If you are hell-bent on paying the minimum and waiting 10 years to see if you get your student loans forgiven, realize a lot can change in 10 years.”
Before committing to PSLF, take time to consider your alternatives. Take a look at what your monthly payments would be if you stayed with the standard 10-year plan. If your bills aren’t too burdensome, sticking with a 10-year repayment schedule might be a safer strategy.
Along the way, you could even throw extra payments at your student loans when and if you have the funds, and end up paying them off ahead of schedule.
And once you have a steady income and decent credit score — or can apply with a cosigner who does — you could consider refinancing for new terms and a lower interest rate. (Although note that refinancing federal student loans turns them private, meaning you become ineligible not just for PSLF, but also other federal programs like income-driven repayment.)
Stay up to date on federal forgiveness program developments
If you owe a large amount in federal student loans, a forgiveness program could offer the financial relief you need. But make sure you understand exactly what the program’s requirements are, so you don’t find yourself out of luck after years of service.
And remember, too, that policies can change, so stay updated on PSLF news, as well as developments around any federal forgiveness programs or repayment plans. Beyond keeping informed, try to have a plan B in case loan forgiveness doesn’t work out.
Look into other strategies for paying off debt or lowering your interest rate, and use a student loan calculator to devise a debt payoff plan that works for your budget. Whether you earn loan forgiveness or choose another route, you can rest easy with the knowledge you’re working toward a life free of student loan debt.
Eric Rosenberg contributed to this article.
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1 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of October 1, 2020.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of September 9, 2020. Information and rates are subject to change without notice.
3 Important Disclosures for SoFi.
4 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of July 31, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 7/31/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
5 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 10/15/2020 student loan refinancing rates range from 1.98% APR to 8.55% Variable APR with AutoPay and 2.99% APR to 8.77% Fixed APR with AutoPay.