The Truth About Student Loan Forgiveness

Student loans are the largest source of debt in America. According to NBC News, student debt is even more prevalent in America than credit card debt or car loans. Student loan forgiveness is a major topic, especially since 1 in 5 Americans have student loan debt.

“Education is not the filling of a pail, but the lighting of a fire.” This is a quote William Butler Yeats supposedly said once upon a time.

But what happens when the pail is borrowed, and when the kindle was gathered for your fire, it also burned holes in your pockets? 

By the time you make it past graduation and into the real world, you find yourself glaring directly into the eyes of the debt monster – and you’re reminded of exactly how much money you owe.

Student loan debt can’t really be considered “good” debt, because no debt is good debt. It’s never “good” to expend more than you can afford to, by borrowing from your future self.

Students are turning to the bank for loans to cover all sorts of education-related expenses. This includes tuition fees, room-and-board, cost of books and school supplies, and transportation. Students also often need loans to compensate for not being able to work or earn money while in school.

If you graduate with student debt, you can’t ignore it. It is crucial for your personal health – as well as the health of the economy – to responsibly manage your finances.

Doing so helps you remain prepared for any contingencies, plan for your retirement, and have the lifestyle you wish to have.

So, one of the most important questions you need to ask yourself is this: In order to responsibly manage your finances, do you need to consider student loan forgiveness?

What is Student Loan Forgiveness?

Student loan forgiveness is a type of assistance program that potentially absolves you of your student debt, or helps you pay it off. Student loan forgiveness comes in several forms.

Your options depend on where you live, what your occupation is, and how much income you earn. The criteria you must meet in order to be approved for student loan forgiveness is extremely particular.

This makes it very difficult for the majority of people to be absolved of their student debt. 

Multiple options are available in America for student loan forgiveness which eliminates student debt only for qualified candidates.

These include Teacher Loan Forgiveness, Perkins Loan Cancellation, Total And Permanent Disability Charge, Bankruptcy Discharge, False Certification Discharge, and Public Service Loan Forgiveness.

One of the most popular types of student loan forgiveness programs in the U.S. is the Public Service Loan Forgiveness.

This is a federal program that considers student loan forgiveness for borrowers who are employed full-time in an eligible federal, state or local public service job, or an eligible non-profit job.

The U.S. Department of Education released the latest statistics for Public Service Loan Forgiveness. On average, 99.5% of applicants are rejected from this Student Loan Forgiveness Program. 

The most recent Public Service Loan Forgiveness Statistics explained that as of September 30, 2018, there were nearly 900,000 borrowers. Only 49,669 applications were received.

This is in part because of how complicated the application process is. Of those 49,669 applications, only 423 were approved, and only 206 people actually received student loan forgiveness. 32,409 people were denied student loan forgiveness by this particular program.

In Canada, student loan forgiveness programs depend on the province you live in and what your current circumstances are.

In British Columbia, for example, recent graduates in select occupations can sometimes have their student loans forgiven by agreeing to work at publicly funded facilities in underserved communities.

It’s more common for Canadian students to get repayment extensions or assistance, rather than getting their student debt cancelled or completely forgiven.

A 5-10 year extension on student loan repayment will lower your monthly payment and make your life a little easier. Lengthening the term of your loan, however, will result in you paying more interest on your total debt. 

Other forgiveness programs in Canada include forgiveness for those earning a very low income.

For example, in some Canadian programs, an individual earning less than $25,000 is not required to repay their student debt until their income exceeds this amount. Essentially, this is a repayment deferral based on income. 

To be eligible under the Canada Repayment Assistance Program, you must reside in Canada, be out of school for at least six months, and you cannot already be in default on your student loans.

In Canada, to be eligible for complete student loan forgiveness (a complete cancellation of your student debt) you typically have to wait for a period of 5 – 7 years before applying.

You can apply to have your student debt completely discharged in a bankruptcy or proposal as early as five years after your end of study date.

You must show that repaying your student loans will cause “undue financial hardship”. This requires lawyers and court dates, and this type of student loan forgiveness is not easy to obtain.

How Difficult is it to Apply for Student Loan Forgiveness?

In general, it’s not designed to be easy to apply for student loan forgiveness. The United States Department of Education, recently published their Federal Student Aid – Fiscal Year 2018 Annual Report.

The report discusses the state of the current federal financial aid process, wherein students must navigate a complex and fragmented landscape if they want to be considered for student loan forgiveness.

The confusion regarding the complicated application process often leads to being automatically disapproved due to an incorrectly submitted application. Or, automatically being denied due to submitting an application with missing information.

The U.S. Department of Education released the latest statistics for the Public Service Loan Forgiveness applications. Last year, over 25% of applicants were denied due to mistakenly leaving out certain pieces of information on their application. That means that over 11,000 applicants were denied due to missing information.

Speaking of confusion, student loan borrowers often fail to understand the financial implications of their student debt, their repayment options, and more pertinent info they should be clear on.

Not everyone takes the time to understand the different types of loans, repayment options, consequences of debt, etc. Not everyone thinks to speak to a financial advisor before taking on student debt.

Students get themselves into a bad position and end up wishing there was a way to eliminate their student debt. Unfortunately, it’s rare to be approved for student loan forgiveness.

Is The #CancelMyDebt Movement a Better Plan for Student Loan Forgiveness?

What’s the point of student loan forgiveness programs if deserving, hardworking candidates are constantly being denied? A U.S. Senator recently came up with a better plan, along with a trending #CancelMyDebt hashtag on Twitter.

In April of 2019, Elizabeth Warren, U.S. Senator and presidential contender, revealed her plan that would one-up student loan forgiveness programs. She wrote in Medium that she plans to cancel up to $50,000 of student loan debt for over 42 million Americans.

According to Warren’s plan, student loan debt would be cancelled for more than 95% of the 45 million Americans with such debt. Her plan also involves wiping out student loan debt entirely, for more than 75% of those with student debt.

Warren explains that this would boost the economy with increased home purchases and more small business start-ups. And, it could significantly increase wealth for Black and Latinx families who face a wealth disparity compared to White families.

In July of 2019, Sen. Elizabeth Warren introduced a bill that would cancel $640 billion of student loan debt.

Under Warren’s plan, the government would pay a one-time US$640 billion to cancel student debt for roughly 42 million Americans. Specifically, Americans whose household incomes are less than $100,000. 

Any U.S. families with wealth above $50 million would get an annual 2 percent tax. Families with wealth over $1 billion would get an annual 1 percent tax.

This could pay for Warren’s plan to wipe out student debt. Warren is the only presidential candidate to present a detailed plan on student loan forgiveness and seek to entirely solve the student debt crisis.

Warren’s proposal also includes making undergraduate tuition-free for two-year and four-year public institutions. This way, just as high school is free, college is free.

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