How Much Will Student Loan Forgiveness Cost?

How Much Will Student Loan Forgiveness Cost?

6 min read


Student loan forgiveness programs vary tremendously between institutions. Many have generous terms, while others may offer students a small amount of relief. You can easily find yourself paying thousands of dollars if you pursue student loan forgiveness and expect to receive less than $10,000 in forgiveness. That’s why we’ve created this guide to help you decide whether or not forgiveness makes sense for you!

The student loan forgiveness program was created to help students who struggled financially after being taught at universities across the country. In 2008, Congress passed the American Dream Down Payment Act, also known as the Home Affordable Refinance Mortgage Program (HAMP), which was designed to help homeowners who were underwater on their mortgages.

How much will the program cost?

According to the U.S. Department of Education’s website, borrowers have three options regarding repayment: 10-year fixed-rate loans; 15-year fixed-rate or graduated payments. The interest rate is set at 4 percent for the first year, 3.76 percent for the second year, and 2.912 percent for the third year. However, it is possible to pay less than $0 per month in principal. If borrowers make minimum monthly payments, they may not make any payments in years five and six. Borrowers who are current on their loans will still owe $0. However, if borrowers are late on their payments, they will begin to accrue additional fees.

Who qualifies?

All borrowers who want to take advantage of the student loan forgiveness program must meet certain requirements. First, they must have taken out federally guaranteed student loans before July 1, 2007. Loans issued after this date do not qualify. Second, borrowers must be enrolled full-time or at least half-time at an eligible educational institution, including community colleges, vocational schools, trade schools, or public or private nonprofit elementary or secondary schools. Third, borrowers must have been awarded a bachelor’s degree or higher two or four years prior to applying for student loan forgiveness. Fourth, borrowers must work at least 30 hours a week while attending school. Finally, between September 2010 and August 2014, borrowers must make 120 qualified monthly payments of 10% or more toward their loan principal.Qualifying borrowers can apply for forgiveness once every 24 months.

What are the qualifying criteria?

Borrowers whose parents did not go to college will need to complete a free application for FAFSA and report any income earned above the poverty level. Those who earn too little to receive financial aid will not be able to participate in the program. Income limits are based on the size of the family. One child in a household earning $18,240 annually does not put them over the limit; however, two children in a household earning $24,000 each year puts them over the limit. Those who already own a home should not expect to receive assistance under the program. Only those who cannot afford to repay their debt without government help will be eligible for the program.

What happens after borrowers sign up?

Once borrowers have completed all the paperwork and paid off their federal loans, they will be considered for forgiveness. At this point, lenders will send borrowers a letter informing them whether or not they have been chosen for forgiveness. If they are chosen, then they will be given a loan modification. Under these modifications, borrowers are allowed to refinance their existing loans at lower rates.

Are there any stipulations?

Borrowers must make 120 monthly payments of at least 10% on the principal of their federal loans under the HAMP program.After that, borrowers will no longer have to make monthly payments. However, they will continue to accrue interest and penalties until the balance is forgiven. Borrowers who default on their loans will not be granted forgiveness. Additionally, those who are unable to keep up with their payments will be charged an extra fee. Forgiveness will not be available to those who have previously declared bankruptcy.

How Much Will Student Loan Forgiveness Cost?

The average student loan debt per borrower over 25k in 2015 was $30,939. That’s over 6 times higher than the national median household income of just under $53,000.

That means borrowers who owe more than $25,000 have an average amount owed of $30,939, while those who owe less than $25,000 have an average of $8,700.

Of course, not everyone owes the same amount, but it’s safe to say that some people do much worse than others.

Here are 10 examples of how much someone could potentially pay back their loans if they were to forgive them entirely.

A man who owes $150,000 would pay back an estimated $12,750.

This is based on a federal forgiveness program called Income Based Repayment (IBR). Under IBR, the government forgives the first 20% of monthly payments; after 30 years, the remaining 80% is forgiven.

A woman whose balance is only $15,000 would pay back about $1,100.

In this case, her balance is low enough that she will qualify for public service loan forgiveness (PSLF). The PSLF covers private student loans that have been issued between July 1, 2007, and December 31, 2010. Borrowers must make 120 qualifying payments before they get 100% forgiven.

A person with $75,000 in balances might pay back almost half of that total amount ($37,500), plus interest.

This is a good example of what happens when borrowers don’t make enough money to keep up with payments. In this case, he would have to pay back his entire balance plus 8%, or $43,200.

Someone who holds a combined $140,000 in private and public loans will pay back about $17,500, including principal and interest.

For these types of loans, a borrower generally qualifies for direct consolidation, where both debtors consolidate their individual loans into one. If one debtor makes at least 120 payments in a period of five years, he or she gets to wipe out the original debt.

Someone with $60,000 in balances would pay back nearly half of their total amount.

According to a report from Credible, this person’s best bet would be private student loan forgiveness, which kicks in once borrowers have paid off 15 years’ worth of payments. He or she would need to make 35 payments to trigger this benefit.

How Much Will Student Loan Forgiveness Cost?

$0 – $15,000









$900,001 and up

Other (please specify)-

None of these

If student loan forgiveness costs nothing, I’m going to go ahead and give myself a gold star.

If it costs $15,000, I’ll get a silver star.

How Much Will Student Loan Forgiveness Cost?

Student loan forgiveness costs vary depending on which program and how much debt you owe. You may not qualify for any programs at all, or you could have many options. There’s no way to know until you apply!

However, we do know the average cost of student loans. We’ll walk you through how much you might pay for each option, including what type of repayment plan you choose—and if you should even bother trying.

Types of Loans and Loan Forgiveness Programs

There are basically two types of federal student loans: subsidized and unsubsidized. Both carry different interest rates and terms. Subsidized loans don’t require payment until after you graduate, while unsubsidized loans start charging right away. But subsidized plans allow borrowers to defer payments for up to 10 years (and sometimes longer), while those on unsubsidized plans face payments for 20 years.

The government offers several types of loan forgiveness depending on when you take out your loans. You generally have to repay your loans for 15 or 20 years before they’re forgiven, and some students never earn enough money to make their payments. However, you can go back to school and get additional loan forgiveness under the Public Service Loan Forgiveness Program.

For example, let’s say you took out $10,000 in loans to finance your college education. If you want to receive full loan forgiveness, you’d need to work for five years in public service jobs and then complete 120 months of income-based repayment.

Undergraduate Students

If you borrowed for undergraduate studies, you might qualify for either Direct PLUS Loans or Perkins Loans.

Direct PLUS Loans are offered directly from the feds, which means you won’t need to borrow from private lenders. However, you’ll still pay higher interest than you would for unsubsidized loans. Your monthly payment would most likely be about 30% higher.

Perkins Loans are provided by banks and offer flexible repayment schemes compared to Direct PLUS Loans. Undergraduates who take out these loans typically use them to cover tuition, room and board, books, supplies, and other fees.

Graduate Students

Private graduate students often rely on Graduate PLUS Loans. These loans require a co-signer, so you probably won’t qualify without help from family members. Plus, you’ll pay more in interest than with unsubsidized loans, and you’ll have to make larger monthly payments.

A Public Service Loan Forgiveness is only available to certain people who work in public service jobs. To qualify, you need to work for five consecutive years in certain fields, including teaching, healthcare, social services, law enforcement, firefighting, and emergency management. Once you’ve worked long enough, you’ll stop making payments, and the remaining balance will be erased after 10 years.

Public Service Loan Default Relief applies to loans you defaulted on before October 1, 2007. This means you can skip paying for 25 years instead of 10. Payments aren’t waived entirely, though; you’ll end up repaying amounts based on your original default. (Plus, you’ll have a negative credit score.)

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