By Katie Krumpter, NYLAG Coordinating Senior Financial Counselor
Facing challenges with student loan payments? You might qualify for lower payments or even loan forgiveness. Discover how personalized financial counseling can secure loan forgiveness and provide options in navigating repayment challenges, ultimately transforming lives, through some of our clients’ stories:
- Total and Permanent Disability Discharge Loan Forgiveness
Olivia received a letter from her student loan servicer about potentially qualifying for a Total and Permanent Disability (TPD) discharge. Olivia, who receives Social Security Disability and Supplemental Security Income, was anxious. After reviewing the letter, I confirmed that it was valid and that her loans would be forgiven without any added steps on her part. My goal was to ensure she felt supported and clear about her path forward. I also made sure she knew that, unlike other debt discharges, this forgiveness wouldn’t be taxable.
As a first-generation American, Olivia was the first person in her family to attend and graduate college, so even though her loan balance was small at $9,429, it always gave her anxiety. Without her loan to worry about paying back, Olivia felt empowered to begin work part time, as a test of her ability to do so, about a year after her forgiveness. She is now working full time and off both Social Security Disability and Supplemental Security Income.
- Pro tip: If the Social Security Administration, Veterans Administration, or a medical professional has certified that you are permanently disabled, then you may be eligible for a discharge. More information: “How do I show that I’m totally and permanently disabled?”
2. Income-Driven Repayment (IDR) Forgiveness.
Ruth, an 83-year-old client, borrowed $6,250 in federal student loans in 1979 and 1980. Despite intermittent payments and forbearance, her balance had grown to $30,855 by our meeting. Relying on Social Security and SNAP, Ruth sought my help due to concerns about managing the resumption of her student loan payments.
How did a financial counselor help?
During our first call, we confirmed Ruth was up to date on her student loans when COVID-19 paused payments. I was happy to inform Ruth that her REPAYE (Revised Pay As You Earn) payment would be switching to the Biden SAVE plan, making her monthly payment $0 due to her low income. Ruth was relieved by the $0 payment but initially worried about the annual income certification. I assured her that I would be there to guide and support her through this process.
A couple of months later, Ruth received news from the Department of Education that she qualified for loan forgiveness after 20 years of payments. As I informed Ruth, this is a game changer because this forgiveness is not only a significant relief but also tax-free through December 31, 2025, giving her a hopeful outlook on her financial future.
- Pro tip: On August 9, 2024, the Eight Circuit issued an injunction which prevents the Department of Education from administering all parts of the SAVE income driven repayment plan. The Department of Education has removed the ability to apply for an Income Driven Repayment plan and loan consolidation online and they have placed everyone that was on SAVE as of July 18 on a 0% interest forbearance. Updates will be posted here: SAVE Plan Court Actions & Impact on Borrowers.
3. Public Service Loan Forgiveness Applications
Maeve sought financial counseling to clarify their Public Service Loan Forgiveness (PSLF) eligibility. Although they had been working full-time at a qualifying hospital since 2010, they were still making payments after 13 years. They first applied for PSLF in 2012 and again in November 2021. By July 2023, Maeve was still at the hospital but unsure about their status.
How did a financial counselor help?
As their counselor, I explained that PSLF requires 120 months (a minimum of 10 years) of qualifying payments. After reviewing their case, I found that Maeve had only received 104 months of credit. While they had qualifying employment for 13 years, there were various periods during that time that their student loans were in forbearance or in-school deferment, neither of which counts towards forgiveness. Additionally, Maeve was missing credit for months after the last time they submitted a PSLF form.
- Pro tip: The “IDR one-time adjustment” that the Department of Education will complete this fall will count “long” forbearances, but not all months spent in forbearance, nor months spent in in-school deferment. You can find more about the One Time Adjustment here: One Time IDR Adjustment.
I recommended submitting a new PSLF application for December 2021 to July 2023 to reflect their continued qualified employment, as the Department of Education was not aware of their status after their last application. As I explained to Maeve, PSLF applications only account for employment up to the date the employer signs them; submitting a new form would credit them with these 20 additional months, even though payments were paused during the COVID-19 forbearance period. Once the Department of Education processes the updated application, Maeve will receive confirmation of their forgiveness eligibility. I recommended that they request a forbearance from their servicer if they did not receive this confirmation by the time payments resumed in October 2023.
4. Fresh Start to get out of default
Alexei graduated from Syracuse in 2015. He diligently managed his student loans until 2019, when he defaulted on his loans due to unforeseen expenses. While the Covid-19 payment pause helped him with other debts, his student loans remained in default.
How did a financial counselor help?
During our first meeting, I explained to Alexei that he qualified for the Biden administration’s Fresh Start program. This program allows borrowers to clear their default status, select a student loan servicer, and switch to an income-driven repayment plan. With my assistance, Alexei called the 800 number, and within about 10 minutes, the servicer removed his loan from default and transferred it to his chosen servicer. Alexei was relieved to know he is now in compliance and working towards income-driven repayment and potentially forgiveness.
- Pro Tip: This program is available through September 30, 2024, and you can find additional information here: https://studentaid.gov/announcements-events/default-fresh-start.)
Financial counselors can play a crucial role in advancing racial equity by offering personalized support to address disparities in student loan management. We work with clients like Olivia to transition smoothly to employment by easing their loan burden, and ensure that others, like Ruth and Maeve, can navigate repayment and forgiveness programs effectively. By simplifying complex financial processes, financial counselors can reduce default rates and empower those most burdened by student loan debt, bridging racial and economic gaps in financial stability.
Still have questions?
NYLAG Financial Counselors help you create a plan to secure a financially stable future.
- If you are currently working with a NYLAG financial counselor, reach out to them now to discuss your student loan options.
