Coach Q&A: What is Income-Driven Loan Forgiveness?

February 4, 2020

I have a $65,000 in federal student loans. I’ve heard there’s a way to get loan forgiveness after 20 years. Can you talk to me about what that is?

 

Federal student loans are all potentially eligible for forgiveness after 20 to 25 years of payments on one of the four income-driven repayment plans. I say they’re “potentially eligible” because 20-25 years is a long time to pay back student loans. After two decades of payments, you might not have a loan balance to be forgiven. Let’s dive into the details of Income-Driven Loan Forgiveness.

 

What exactly is Income-Driven Loan Forgiveness?

Income-driven loan forgiveness is a program that forgives the remaining student loan balance after 20-25 years of payments under one of the four income-driven repayment plans. Remember, the IDR plans are PAYE, REPAYE, IBR, and ICR. The forgiven amount under this plan is taxed as income.

 

Use the calculator to find out if you’ll have any loans left to forgive.

 

Use the Federal Student Aid repayment estimator to estimate what, if anything, you’ll get forgiven. This quick calculator takes less than 5 minutes and can show you which income-driven plans you qualify for and if you’ll have anything left to get forgiven. This calculator also shows you whether you need to make payments for 20 or 25 years.

 

Remember, you will have to pay income taxes on the forgiven amount. It can be helpful to talk with a licensed tax professional about the potential taxes you will have to pay so you can start saving. You don’t want a surprise tax bill in 20 years.

 

Loans haven’t been forgiven under this plan yet.

 

Income-driven loan forgiveness was first made available in 2007. That means no one has actually made payments for 20 or 25 years yet. We haven’t seen how successful this program is. I recommend you start tracking your eligible payments right now. You want to create a paper trail and history of your eligible payments in case there are questions when it comes time to get forgiveness.

 

Create your own paper trail of eligible payments.

 

Contact your federal student loan servicer(s). Request a record of all past payments and the repayment plan you made those payments under. It may take a few months to get this record provided but it is your proof of eligible payments. Keep track of the deadline they set for delivering the documentation to you.

 

If your servicer misses that deadline, contact them again, remind them of the deadline, and ask for an update on the status of your documentation. Be persistent, your servicer has your repayment history and can provide it to you. It’s better to get this documentation now and update it annually than to wait 20 or 25 years and have to scramble.