Student loan forgiveness is a hot topic today. Why? For one, student loans in the United States total more than $1.6 trillion! Moreover, the average borrower has $32,731, with monthly payments of $383. It’s no wonder people want a way out of their student loans! But this presents a question: is student loan forgiveness real? If it is real, can we depend on it?
Well, I’m not going to leave you hanging on this one. Technically, there is a Public Service Loan Forgiveness program, as well as a Teacher Loan Forgiveness program. There are also other ways student loans can be discharged or canceled. However, I’m going to make the argument that you shouldn’t depend on these.
The Differences Between Forgiveness and Discharge
Before we begin, I need to define a couple of terms. Often, people confuse student loan forgiveness with student loan discharges. For all intents and purposes, they almost mean the same thing. However, there are some subtle differences.
Forgiveness is when the government no longer requires you to make payments on your loan due to your job. Forgiveness comes after you make a certain number of qualifying payments and meet a rather extensive list of qualifications. That is to say, you have to earn this kind of forgiveness. It’s kind of irksome, wouldn’t you say?
A Discharge occurs due to other life circumstances. Some examples include if your school closes, if you end up permanently disabled, or if you die. In other words, your greatest chance of getting a discharge is either losing a limb or kicking the bucket. Not exactly sunshine and rainbows.
Why You Shouldn’t Depend on Student Loan Forgiveness
While student loan forgiveness programs exist, they hardly present a reliable plan. Let’s take a look at why.
1. The Requirements are stringent
First, let’s take a look at the requirements for the Public Service Loan Forgiveness (PSLF) program.
- You must have a job with a qualifying employer. That means the federal government, a local or state government, a tribal government, or a non-profit organization.
- You must work full-time.
- You must have a William D. Ford Federal Direct Loan.
- You must repay your loans under an income-driven repayment plan.
- You must make 120 qualifying repayments (this translates to 10 years of payments).
Those are the main ones at the top of the PSLF website. But oh, there is so much more. Each one of those points has stringent requirements of its own. For example, if you’re under any other repayment plan other than the income-based plan, you won’t qualify. If you miss a payment, you won’t qualify. Are you itching to go to a private organization to increase your salary? Well, if you do so, you lose your eligibility for student loan forgiveness.
By the way, private loans don’t count. To be eligible for PSLF at all, your loans have to come from the government. There are even certain federal loans that don’t count. Sure, you can consolidate those other federal loans into a Direct Loan. However, payments you made previously into those loans, as you might guess, don’t count.
I think you get the picture. There are so many factors and qualifications that come into play. It’s not worth it.
2. The Odds of Loan Forgiveness are Slim
This next set of statistics may not sit well with you. But they will shake your faith in so-called student loan forgiveness. Also, I got these stats directly from the Federal Student Aid website, so you are welcome to check them out for yourself.
- As of May 2020, 155,642 borrowers have submitted 202,094 applications for PLSF.
- Out of the submitted applications, 187,053 were complete with 15,041 still processing.
- So far, 183,356 are ineligible for forgiveness. The most common reasons were for lack of qualifying payments (57%), missing information (24%), and not having eligible loans (14%).
- Only 2,429 applicants have had their student loans forgiven. That’s about 1.2% of applications that meet all the requirements and receive forgiveness.
As you can see, the odds are not in your favor. You have a better chance of winning the Hunger Games than receiving student loan forgiveness.
3. You Could End Up Paying More for Your Loans
I’m going to give you a couple of scenarios. For the first one, let’s say Sally has the average student loan debt and the average payment along with it. As stated earlier, the average debt is $32,731 with the average payment at $383. For the sake of simplicity, we’ll say the interest rate is 7%. Do you know how long it will take Sally to pay that off? Ten years.
That’s right, it takes exactly ten years to pay off $32,731 with a monthly payment of $383 at 7% interest. Oh yeah, I forgot about the interest she paid! It’s $12,717. Sally just waited 10 years for student loan forgiveness and she ended up paying it off right at the time she would become eligible! Plus, she paid extra. If Sally had just paid an extra $200 a month she would have saved thousands on interest and paid it off four years earlier.
How about a more real-life scenario? I spoke with someone who had $89,000 in student debt at 7% interest. He didn’t tell me his monthly payment. But according to my calculations, for him to make any dent in the principal balance, he would have to pay at least $550 a month.
Paying $550 a month for 10 years comes out to $66,000. Sure, that’s less than $89,000. However, if he turns out to be ineligible for forgiveness, do you know what his principal loan balance would be? $83,000. Let that sink in. Paying $550 a month at 7% interest on an $89,000 loan for ten years still leaves a balance of $83,000. Remember, he only has a 1.2% chance of obtaining student loan forgiveness. If he doesn’t get it, he’ll still have to pay $83,000. Therefore, he ends up paying a lot more.
Don’t Bank on Student Loan Forgiveness.
I want you to think about something for a moment. First, the PSLF program requires you to take a possibly low-paying job. Face it, we all know that government and non-profit jobs don’t pay top dollar. Second, you have to stay in debt for ten years. Oh, and you don’t get to pick your payment amount. They tell you how much to pay. Here’s a hint: it doesn’t make much of a dent on the principal balance. Finally, you submit your application and find you’re somehow not eligible.
So tell me, was it worth it? Somehow I don’t think so. Student loan forgiveness isn’t worth the wait, and there’s a 99% chance of disappointment.
But What About Politicians Promising Student Loan Forgiveness?
I hate to disappoint you, but the odds of this happening are even lower than getting PLSF. Politicians will not come to your rescue. Sure, there are a few of them that really want to get rid of student loans. However, this just isn’t going to happen. The government would lose billions of dollars of revenue if student loans suddenly disappeared. Therefore, I guarantee they’re not going to miss out on that.
Also, this doesn’t really solve the problem. This isn’t always the case, but taking out massive amounts of student loans are typically a sign of financial irresponsibility. I don’t have data to support this, but in all likelihood, student debt would be replaced with some other kind of debt. Simply wiping it out doesn’t fix the heart of the problem.
So What Should I do?
I’m glad you asked! There are steps you can take towards knocking out your student loans.
1. Start Budgeting
It may seem basic, but the best thing you can do is to make a budget. When you budget, you get to tell your money where to go. Otherwise, your money will disappear at the end of the month. Also, make sure you first build up some money for a starter emergency fund of $1,000.
2. Make Some Sacrifices
As the old saying goes, “No pain, no gain!” You’re going to make some tough decisions. Do you have cable? Cut the cord. Are you eating out? Start eating in. Do you have a $120 a month gym payment? Time to start working out at home. Indeed, you’ll need to make some sacrifices in order to attack your debt with every extra dollar.
3. Pay Above the Minimum Payment
If you pay only the minimum payment, you could be in debt for the rest of your life. The only way to pay it down quickly and save money on interest is to pay above the minimum payment.
4. Consider Getting a Side Hustle
Side hustles can help you knock out your money goals even faster. Why not do something in your spare time to make an extra $1,000 a month to kill your debt. If you need some ideas, I made a list of 40 ways to make extra money.
5. Use the Debt Snowball Method
Nothing beats the debt snowball! Your student loans will shiver in fear as a massive snow boulder makes its way towards them! But seriously, this is the best method for paying off all your debt. Order your debts from smallest to largest. To begin, attack the first with everything you have. Afterward, attack the second one with everything you have plus the minimum payment from the first. Eventually, you’ll have everything paid off!
6. Pay Off Your Loan
Celebration time! Pay off those student loans and go celebrate! Bask in the wonders of financial freedom. Now you’re free to go and give more, build wealth, invest, and more!
Student Loan Forgiveness Won’t Help You
In conclusion, student loan forgiveness is technically a real program, but it won’t help you. However, you can help you. You can make a plan, stick to a budget, and knock out your debt using the debt snowball. I recommend killing your debt as opposed to waiting around for something that has only a 1.2% chance of success. Seriously, you wouldn’t do anything else in life that had such a small possibility of success.
Why live 10, 15, or even 20 years with a student loan attached to your hip? Get rid of that thing! Pay it off as soon as possible and experience the fullness of financial freedom! Afterward, you’ll be free to fulfill God’s call in your life without restriction or reservation!