If you’re considering student loan forgiveness but the dubious PSLF news has you wondering if any forgiveness option is safe you’ll want to read this. Estimated read time 5 min.
PROSPER wants to eliminate time-based loan forgiveness for new borrowers, I haven’t heard of anyone who’s actually received PSLF, what is the deal with loan forgiveness? Is loan forgiveness for real or is the government going to pull the rug out from under borrowers? The proposals in the PROSPER Act and the news around PSLF might have you wondering if you’re on safe ground and if loan forgiveness is a secure option for getting rid of your student loan debt. Let’s take a look at the information we know about loan forgiveness.
PSLF and income-driven loan forgiveness
Public Service Loan Forgiveness (PSLF): Forgives remaining balance of student loans after a borrower makes 120 payments on a qualifying income-driven repayment plan while working for a qualifying employer. The loan amount forgiven is tax free.
Income-driven Loan Forgiveness: Forgives the remaining balance of student loans after a borrower makes payments on an income-driven plan for 20-25 years (depending on when loans originated). The loan amount forgiven is taxable.
Borrowers who qualify for these programs
PSLF: Borrowers employed in specific public-service jobs.
Income-driven Loan Forgiveness: Any borrower who makes payments on their income driven repayment plan for 20-25 years.
Estimated costs
PSLF: $23.7 billion dollars over the next decade.
Income-driven Loan Forgiveness: $74 billion over the next decade.
Security of Plans Based on Cost
PSLF: is an incredibly high cost plan that doesn’t cap the loan amount forgiven and covers a broad range of borrowers. The proposed PROSPER Act eliminates this plan for future borrowers. If you haven’t yet borrowed and are considering PSLF as a way to make your debt affordable look somewhere else. It’s unlikely this plan will survive in the long term. If you’re currently working toward PSLF you should be able to get loan forgiveness through PSLF.
Income-driven Loan Forgiveness: is another high cost loan forgiveness option. This option helps borrowers with the most need making it a plan that is better targeted than PSLF. However time-based loan forgiveness is also set to be eliminated for new borrowers under the PROSPER Act to be replaced with a plan that protects borrowers from negative amortization so they would pay no more than they would have under a 10 year standard repayment plan. Because this type of forgiveness is better targeted and allows the government to collect more of the original debt it’s more likely that this will survive in some form for future borrowers. If you’re a current borrower you will likely get loan forgiveness under this model.
So what’s a borrower to do?
Unfortunately the security of loan forgiveness options depend greatly on the desires of Congress. If you want to exert the control you have then you must talk to your representative and state senators. Tell them what your life looks like with loan forgiveness and tell them what it looks like without it. Borrowers have demonstrated they’re ready to speak up as evidenced by the fact that the student loan interest deduction and graduate school tuition waiver remained intact in the tax plan.
Find and contact your representative here.
Find and contact your senators here.
Borrowers counting on loan forgiveness need to continue to keep their loan in good standing by making payments on time each month. If you’re counting on PSLF, start submitting your certification of employment now and keep doing it annually.
Do you feel uncertain about loan forgiveness? Let me know in the comments below or on the Repayable Facebook Page.
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