Most Borrowers Won’t Get Student Loan Forgiveness

Here’s a surprising reality: most student loan borrowers won’t get student loan forgiveness.

Here’s what you need to know — and what it means for your student loans.

Student Loans

It’s not every day that the words “income-driven repayment plans” and “danger” are used in the same sentence. At first glance, income-driven repayment plans are a rather benign path to student loan repayment and student loan forgiveness. However, a surprising new report warns student loan borrowers to beware of the dangers of student loan forgiveness. The shocking reality: don’t expect student loan forgiveness from income-driven repayment plans. Strikingly, income-driven repayment promise to forgive student loans, but most borrowers won’t get any student loan forgiveness — despite their efforts. (Do you qualify for $5 billion of student loan forgiveness?)

Student loan forgiveness: why you probably won’t get any

According to the report:

• Only student loan borrowers with starting salaries of $20,000 and $30,000 (rising 3% annually) will get their student loans forgiven.
• After 20 year of student loan payments, these student loan borrowers can get $27,000 of student loan forgiveness if they never stop making payments.
• Borrowers with starting salaries of $40,000 to $100,000 (also rising 3% annually) will pay off their student loans before 20 years. This means they won’t get any student loan forgiveness. (Shock Poll: Student loan borrowers think all student loans will be cancelled before May).
• Most student loan borrowers with a large amount of student loan debt may get student loan forgiveness, pay substantial student loan interest — which could be as much or more as the amount of student loans forgiven.

(Here’s who won’t get student loan forgiveness)

How income-driven repayment works

Income-driven repayment is supposed to be a “safety net” for student loan borrowers, particularly those who are struggling financially. By enrolling in an income-driven repayment plan, student loan borrowers pay their federal student loans based on their discretionary income and family size. (Student loan forgiveness could be the reason that Democrats lose the midterm elections). There are four main types of income-driven repayment plans:

• Income-Based Repayment (IBR)
• Pay As You Earn (PAYE)
• Revised Pay As You Earn (REPAYE)
• Income-Contingent Repayment (ICR)

After 20 years of on-time, in-full student loan payments, you can federal student loan forgiveness on your remaining balance for your undergraduate student loans. After 25 years, you can federal student loan forgiveness for your graduate student loans.

(Here’s where President Joe Biden stands on student loan cancellation).

Should you avoid income-driven repayment plans?

Income-driven repayment plans are still a helpful option for borrowers. (This lawmaker thinks student loan forgiveness is a terrible idea). Compared with forbearance or deferment, for example, income-driven repayment plans are preferable. It’s possible to get a monthly student loan payment as low as $0. That said, borrowers should be aware that student loan forgiveness may not happen the way they think. For example, they may pay off student loans before getting student loan forgiveness. Or, they might get a lower amount of student loan forgiveness than they realize. Biden has proposed to reform income-driven repayment, including calling for automatic enrollment and lowering the percentage of discretionary income that borrowers would pay each month for their student loans.

With the end of temporary student loan relief approaching, now is the time to evaluate your options based on your unique personal and financial situation. Here are some popular options to pay off student loans faster:

• Student loan refinancing (lower interest rate + lower monthly payment)
• Income-driven repayment plans (lower monthly payment)
• Public service loan forgiveness (student loan forgiveness for federal loans)

Student Loans: Related Reading

Here’s who won’t get student loan forgiveness

7 ways to get a lower student loan payment

How to get $1.7 billion of student loan forgiveness

Do you qualify for $5 billion of student loan forgiveness?