Many post-grad law students out there have to deal with student loan debt. It usually comes with the territory of paying for tuition and the bar exam. Some students are fortunate enough to not need to pay much for law school through scholarships and grants, but even students who get scholarships may take out loans to pay for tuition, supplies, living expenses, etc.
However, not a lot of people know that once you’ve made regular on-time payments towards your student loans for twenty years, your chances of getting the rest of that debt forgiven are actually quite good. In fact, you could probably get your loans discharged today if you qualify for a loan forgiveness program.
Student loan forgiveness is a process of having your student loan debt forgiven or discharged so that the financial burden of the loan will be taken from the borrower. Most federal student loans automatically qualify for loan forgiveness under special circumstances. Most students that have student loan debt can choose to enter a PSLF program or set up an income-driven repayment plan to ease their financial burden.
After twenty years of making regular on-time payments, it becomes much easier to have the rest of your student loan debt forgiven through one of these programs. If you’re a lawyer that graduated from law school twenty years ago and want to have your remaining student loan discharged, read on!
In this guide, we’ll be looking at how you can get your student loans forgiven after twenty years, what programs are out there for student loan forgiveness, and how income-driven repayment plans can help.
How to get student loan forgiveness after 20 years
The main way to get student loan forgiveness after twenty years of making regular payments is through a student loan forgiveness program. The three main forgiveness programs that borrowers tend to work with are the REPAYE plan, the PAYE plan, and the IBR plan. Let’s take a look.
This plan is known as the Revised Pay as You Earn plan. With this repayment plan, you only have to pay back 10% of your discretionary income towards your student loans.
Unlike PAYE (which we’ll get into next) the REPAYE plan has an interest subsidy and usually takes five years longer to receive student loan forgiveness. So technically, REPAYE is a twenty-five-year repayment plan. You can qualify for this program if you have Stafford, Direct Subsidized, Unsubsidized, or PLUS loans. Private loans and loans that are in default from non-payment are not eligible for this plan. Perkins loans are also not eligible.
Federal Family Education Loans can be repaid under this program.
If you are enduring financial hardship and your ten-year standard repayment plan’s loans are larger than the monthly amount you are able to pay, you will likely qualify for REPAYE.
This is a great plan for borrowers because it is open to virtually anyone who borrowed money from the Direct Loan program. It doesn’t really matter when that money was borrowed or how much was taken, as long as it was through a loan program that qualifies. Participation in this program also keeps borrowers eligible for the PSLF program, which can shorten your payment terms down to ten years.
This plan is known as the Pay as You Earn plan. With this repayment plan, you only have to pay back 10% of your discretionary income towards your student loans.
This income-based repayment program provides total student loan forgiveness after about twenty years. You can qualify for this program if you have Stafford, Direct Subsidized, Unsubsidized, or PLUS loans. Private loans and loans that are in default from non-payment are not eligible for this plan. Perkins loans are also not eligible.
Federal Family Education Loans cannot be repaid under this program.
If you are enduring financial hardship and your ten-year standard repayment plan’s loans are larger than the monthly amount you are able to pay, then you will likely qualify for PAYE.
This is an ideal plan for borrowers because the government will pay the unpaid accrued interest on your qualifying subsidized Stafford loan for three years from when you are accepted into PAYE. Even when that interest does capitalize, it is limited to only 10% of your original balance.
This student loan forgiveness plan is only for loans that were taken out after July 1st, 2014.
Income-based repayment (IBR) plans are very widely available income-driven student loan plans for federal loans. Such a plan can help borrowers keep their loan payments in an affordable range with payment caps that are based on their specific income and size of their family. This plan also makes it possible to erase any remaining debt after twenty-five years of on-time payments.
Anyone who has borrowed either Direct or FFEL federal student loans can be eligible for this plan. However, student loans made to parents do not qualify. You’ll need to have enough debt that is relative to your income in order to get a reduced payment.
IBR uses a sliding scale in order to decide how much one can afford to pay on their federal student loans. For borrowers who earn under 150% of the poverty level for their specific family size, loan payments will be waived. If a borrower earns more than that, their loan payment will cap at 15% of what they earn about that specific amount. For example, a single person who earns less than $17,655 in a mainland state will have their payments waived under an IBR plan.
How to get forgiveness in 10 years
If you’re about ten years into your student loan payments, you have options too. After paying one’s student loans on-time for about ten years, some graduates can take advantage of the PSLF plan.
What is the PSLF plan?
Public Service Loan Forgiveness or PSLF is a federal program designed to help student loan borrowers get some relief from their loan burdens after ten years.
This program forgives the total remaining balance on a borrower’s federal direct loans after they have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a public service employer.
To qualify for this loan, you must work for a U.S. government organization or a non-profit organization full-time. You must also have direct loans or other federal loans that have been consolidated into a direct loan. You must have made 120 payments towards your loans via an income-driven repayment plan. It is also required that applicants send an employment certification form every year or when switching employers to ensure you are still eligible. Typically, borrowers who work for labor unions, partisan political organizations, and for-profit organizations.
What’s going on with the PSLF program?
You may have seen a lot on the news about the PSLF program in the past few years or so. Unfortunately, many borrowers have had a rough time with the program.
PSLF as a program started in 2007 and the first borrowers became eligible for loan forgiveness around 2017. However, many of these borrowers found out that they had been misinformed about the actual requirements for the program. Some applicants had their applications denied because they were on the wrong repayment plan. Eligible students have to be on an income-driven plan rather than extended repayment plans.
Many borrowers also didn’t know that they needed to submit an Employment Certification Form every year in order to stay eligible for the program. An authorized official would have to verify the signatures on the Employment Certification Form every year in order to approve the loan forgiveness.
It was a nightmare. According to the Department of Education, around 41,000 student loan borrowers chose to apply for PSLF, but only a mere 206 actually received forgiveness after ten years.
These issues were rectified by the Department of Education. In early 2018, the board introduced a Temporary Expanded PSLF (TEPSLF). This program put away around $350,000,000 for borrowers who had accidentally been on the wrong repayment plan.
It’s likely that the requirements for the PSLF will become clearer in the future after this fiasco, but make sure you read the fine print before you apply for this program.
Even though the PSLF makes borrowers jump through a lot of hoops in order to qualify for student loan forgiveness, it offers an alternative to debt relief that doesn’t take twenty years. Unfortunately, it is believed that this program may be done for in the future. Donald Trump has repeatedly proposed eliminating the PSLF program altogether and for the 2020 budget proposal, borrowers who borrow a new student loan on July 1st, 2020 or after will not be able to use the PSLF. Those who are already eligible will be grandfathered into the PSLF under the current proposal.
According to Clint Proctor from Student Loan Planner, this bid to end the PSLF could also cause some major life changes for certain loan borrowers. “In cutting this type of student loan forgiveness,” said Proctor in a writeup for Student Loan Planner, “A ton of overhead would potentially be eliminated, as the Department of Education would no longer have to deal with the headache of verifying employment data from PSLF applicants for 10 years. This repeal would not affect borrowers currently eligible for Public Service Loan Forgiveness. The PSLF program is explicitly listed as an option in your promissory note if you are an existing borrower. President Trump’s plan would affect borrowers who have not yet taken out student loans.”
A lot of this is still up in the air, but if you’ve already taken out a student loan, you won’t have to worry about not even being able to try for the PSLF.
Tax consequences of student loan forgiveness
There may be some tax consequences for using one of these programs, but that absolutely should not deter you from seeing if you qualify.
Some student loan forgiveness options have tax consequences while others do not. Student loan forgiveness under the PSLF has no tax consequences. As per the IRS, you might be required to pay income tax on the amount that is forgiven for other student loan forgiveness federal programs.
The amount of the student loan that was forgiven is added to the borrower’s taxable income for the entire year. For example, if you had around $10,000 in student loan debt forgiven through a federal repayment plan, it would be considered $10,000 worth of income. Outside of that, your actual income for the year from working is around $100,000. Your new taxable income for the year is now $110,000 and depending on your deductions and exemptions, you’ll probably have to owe quite a bit more money come tax season. It’s worth noting that while this isn’t ideal, it’s usually still cheaper than having to pay the original $10,000 plus accrued interest. You can also work out a payment plan with the IRS if necessary to help ease the burden of paying more in taxes.
As we stated earlier, the PSLF has no tax consequences and you can receive student loan forgiveness without owing taxes. If you’re not financially able to deal with having a loan thrown on top of your income for the year, it would be wise to look into the PSLF program first.
Student loan forgiveness may seem like a complex process, but it really isn’t. Most student loan borrowers just need to do their research and may find the right forgiveness solution quickly. At Biglaw Investor, we understand that many law students and practicing lawyers stress out about student loans, especially as the interest piles up. That’s why we’re so passionate about providing the right information for student loan forgiveness, investing, retiring, and getting into great financial condition.
Joshua Holt is a practicing private equity M&A lawyer and the creator of Biglaw Investor. Josh couldn’t find a place where lawyers were talking about money, so he created it himself. He is always negotiating better student loan refinancing bonuses for readers of the site or finding honest companies that provide student loan advice for a fair price.
One thought on Student Loan Forgiveness After 20 Years
Thank you for the very useful post.