The student loan forgiveness program is a special type of benefit established by the federal government. Because the US government is one of the primary lenders of student loans, each year the government distributes a certain amount of money (about $14 billion in FY2017, or 0.06% of all student loans) to the US Department of Education in the form of grants and loan forgiveness. This program is called the Grad PLUS Program. It was established in 2001 as an extension of the Sallie Mae Subsidized Federal Stafford Loan Program, which in turn was created to incentivize Sallie Mae and other private lenders to provide loan opportunities for low-income students. With these two programs, the government financed part of the cost of many of the loans that the average student takes out to attend college, and students received benefit payments after their four years of college.
A major feature of the federal program is that it provides up to $16,500 in forgiveness of a student loan after 20 years of on-time payments, as long as that loan remains outstanding. This means that a student may be able to erase his/her loan debt entirely after a minimum of 10 years of not making on-time payments to the loan, check out this site to get all the details about student loans.
The forgiveness amount increases each year, and is currently capped at $57,500, which is worth $26,000. This means that if a student takes out a loan with a balance of $50,000, the government would provide up to $13,000 worth of federal loan forgiveness. In contrast, if a student takes out a loan with a balance of $150,000, the government would provide up to $33,000 worth of loan forgiveness.
Problems with the US government loan forgiveness program
Although there is a $13.5 billion in loans that are eligible for the forgiveness program, it is not a truly forgiving program. Although a $13.5 billion amount of money is disbursed to the US government each year, not everyone gets the full benefit. In fact, about 44% of all students who are eligible for the program do not receive the full benefit, according to a 2014 Report on Student Debt from the New America Foundation.
The New America Foundation reported that graduates are only eligible for about 40% of the forgiveness, due to the fact that they generally take out loans that are not guaranteed by the government (they are typically on the parent or private loan marketplace). In addition, there is a limit on how much can be forgiven if a borrower had two or more Stafford loans. As a result, less than half of all federal student loan borrowers actually receive the full benefit, according to the New America Foundation’s report.
In addition to student loan debt, more than 80% of federal student loans are taken out for graduate or professional studies, and students can not only face hefty loan repayments, but may be forced to delay the start of a career or drop out of school altogether, which significantly decreases their lifetime earning potential.