Of all consumer debts, student loans have the highest rate of default and delinquency rates. As many as 43 million people make up this $1.3 trillion liability, and many of them need help repaying large balances as they begin new careers or start families. On average, each debt is valued at around $33,000. Fortunately, approximately $1 billion of student loan debt will be eligible for debt forgiveness beginning in 2017.
Student loan forgiveness will be available to help some borrowers of federal (not private) student loans who have made on time, regular payments for a significant portion of time but who still have not repaid their loans in their entirety. Under Public Loan Student Forgiveness (PSLF), eligible borrowers working for the government or military may have their remaining balance forgiven tax-free after making ten years of qualifying, on-time payments. The borrower must be on what is referred to as an “income-driven repayment plan,” which caps the amount of monthly repayment at a certain percentage of the borrower’s monthly earnings.
As with any solution that seems too good to be true, this loan forgiveness is not without flaw. The problem with making income-based payments on student loans is that the interest added to the balance over the term of repayment can cause the amount owed to skyrocket. Since forgiveness of this loan balance is treated and taxed as income, borrowers will still end up owing thousands on the amount that was forgiven. If a person is in need to the point that they are eligible for debt forgiveness, they are not likely to be able to afford the massive tax bill that will come with it.
Although imperfect, this plan is expected to help many people finally become free of their seemingly endless amounts of student debt. The first wave of loan forgiveness will affect borrowers who began repayment in 2007. Approximately 14 percent of borrowers will be eligible for PSLF. The first year of forgiveness will affect approximately $1 to $2 billion in debt, and is expected to increase annually to $5 to $7 billion per year by 2025.
Are you struggling with debt? Do not hesitate to call the Chicago bankruptcy attorneys at Atlas Consumer Law Our experienced team can help you find a solution to your student debt troubles by reorganizing your debt, finding different payment options, exploring options for public service loan forgiveness, and more. Call us today at (312) 313-1613.