Student loans, held by as many as 43 million Americans, have the highest rate of default and delinquency rates of all consumer debts. This liability is worth a staggering $1.3 trillion, with the average student loan debt totaling approximately $33,000 per borrower. With borrowers facing growing demands in a tough labor market, many people are finding themselves swallowed by debt. After years of making on-time payments, the balance never seems to shrink.
$1 Billion Eligible for Debt Forgiveness by 2017: How it Works
Fortunately, by 2017, approximately $1 billion worth of student loan debt will be eligible for a new debt forgiveness program called Public Loan Student Forgiveness (PSLF). This loan forgiveness program will be made available to select borrowers of federal student loans (note that private student loans will not apply).
Borrowers who work for the government or military will be eligible if they have made regular, on-time payments against their balances for at least ten years, but who have still not paid them off completely. Borrowers must be on an “income-driven repayment plan,” meaning that the monthly payments are calculated as a percentage of their monthly income. While this system helps people to afford their payments, it unfortunately has created another problem when it comes to debt forgiveness.
Because income-based payments are smaller than regular payments, monthly interest that is added to the balance can cause the amount owed to skyrocket, and even regular payments will not be able to keep up. Debt forgiveness will save the borrower from having to pay the rest of their loan balance, but because the balance is treated as income, borrowers will still end up owing thousands of dollars in year-end income taxes on that amount. Essentially, one large debt is replaced with another.
Are You Eligible for Student Debt Relief?
Although this plan is not without flaw, it could help many people free themselves of crushing student debt. Those who began making student loan repayments in 2007 will be the first group eligible for debt forgiveness. Approximately 14 percent of student loan borrowers will be eligible for the program.
The first year, 2017, is expected to affect approximately $1 to $2 billion in student loan debt, and by 2025 is projected to increase to $5 to $7 billion per year.
Are you overwhelmed by debt? The Southern California bankruptcy attorneys at Wadhwani & Shanfeld can help you find the solution you need to regain your financial freedom. Our board-certified bankruptcy specialists can examine your unique situation and walk you through your options so that you can enjoy life debt-free. For a free consultation, please contact us at (800) 996-9932.