Understanding the Student Loan Forgiveness Statute

Understanding different laws can sometimes be difficult, especially when it comes to laws regarding your student loans. If you struggle with understanding the student loan forgiveness statute, you’re not alone. The most important part about your student loans is knowing when they are over and how the forgiveness process works. Let us help you understand which loans qualify for forgiveness and what happens at the end of your regular payments.

Income-Based Repayment Plans and Forgiveness

The repayment plan you use to pay off your loans matters when considering the beginning of your applicable loan forgiveness period. In a previous blog, we discussed the different types of repayment programs along with their pay periods. The student loan forgiveness statute has qualifications for outdated loan programs and consolidation loans.

Income-Contingent Repayment Plan

If the borrower has made payments under the ICR plan, the date they started making payments begins their loan forgiveness period. This is only applicable for payments after July 1, 1994. Loan forgiveness should take place after 25 years of regular payments.

Income-Based Repayment Program

Once you’ve made your first payment on a loan that qualified for the IBR program, the loan forgiveness period begins. Deferred loans and Direct Consolidation Loans that have combined multiple loans to qualify for the IBR program will begin on the first payment or deferral after July 1, 2009.

Consolidated Loans

For all consolidated loans, the forgiveness period begins upon the first payment of your new monthly Direct Consolidation Loan amount.

Other IDR Repayment Plans (PAYE, REPAYE)

More recent repayment plans will begin their forgiveness period upon your first payment.

Defaulted Loans

Making a payment on a defaulted loan does not count toward your loan forgiveness period. The only exception was during the CARES Act when the government lowered all federal student loan repayments to $0. These payments count towards your forgiveness.

Forgiveness Process

Once the Secretary of Education has determined that you qualify for forgiveness, you will receive a letter six months in advance to inform you of your impending student loan forgiveness. You will still be expected to make payments during these six months. The letter will also provide you with important tax information and contact information for the IRS to inform them of your loan forgiveness.

Remember that even after the remainder of your loan and its interest is canceled, it is still considered taxable income. You will be required to make a note of it on your taxes and pay accordingly.

If you require more information about understanding the student loan forgiveness statute and what the statute means for you, or if you need federal student debt relief, contact us at Hope Credit. Our professionals will clear up any uncertain circumstances with student loans that you may find yourself in.