Real Stories, Real Solutions: How Financial Counseling Can Unlock Your Path to Loan Forgiveness

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 navigatingrepayment challenges,ultimately transforminglives, through some of our clients' stories:

1. 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 addedsteps 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'tbe 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 aboutpayingback, Olivia felt empowered to begin work part time, as a test ofher 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 AsYou 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 Circuitissued an injunctionwhich preventsthe 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 andloan consolidation onlineand 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 theirPublic Service Loan Forgiveness (PSLF) eligibility. Although theyhad been working full-time at a qualifying hospital since 2010, theywerestill making payments after 13 years. Theyfirst applied for PSLF in 2012 and again in November 2021. By July 2023, Maeve was still at the hospital but unsure about theirstatus.

How did a financial counselor help?

As theircounselor, I explained that PSLF requires120 months (a minimum of10 years) of qualifying payments. After reviewing theircase, I found that Maeve had only received 104 monthsof credit. While theyhad qualifying employmentfor 13 years, therewere various periods during that time thattheirstudent loans were in forbearanceor in-school deferment, neither of which countstowards forgiveness. Additionally, Maevewas missing credit for months after the last time theysubmitteda PSLF form.

• Pro tip:The "IDR one-time adjustment" that the Department of Education will completethis fallwill 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 submittinga new PSLF application forDecember 2021 to July 2023 to reflect theircontinued qualified employment, as the Department of Education was not aware of theirstatus after theirlast application. As I explained to Maeve, PSLF applications only account for employment up to the date the employer signs them; submittinga new form would credit themwith these 20 additionalmonths, 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 theirforgiveness eligibility. I recommended that theyrequest a forbearance from theirservicer if theydid 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 firstmeeting, 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 additionalinformation 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 withclients like Olivia to transition smoothly to employment by easing their loan burden,and ensurethat others, like Ruth and Maeve,cannavigate repayment and forgiveness programs effectively. By simplifying complex financial processes, financial counselorscanreduce 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.  

• Connect with a NYLAG financial counselor.

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