In October 2021, President Biden announced major changes to the Public Service Loan Forgiveness (PSLF) program. The overhaul will immediately erase the debt of about 22,000 borrowers who qualify for forgiveness. Another 27,000 may qualify if they prove they were employed in a qualifying job.

The government estimated another 27,000 borrowers could see about $2.8 billion in debts forgiven if they prove they were employed in an eligible job. 

Who Is Eligible For Student Loan Forgiveness Under The Overhauled Program?

Earlier, only certain types of federal student loans and repayment plans qualified for the PSLF program. Under the overhauled PSLF program all federal loans and repayment plans qualify for forgiveness provided that:

• The borrower has made 120 payments while working in an eligible job
• Qualifying jobs include working for the federal, state or local governments, the U.S. military, or a nonprofit organization

This is a huge relief to borrowers who work in qualifying positions but who had the wrong type of federal student loans. Previous loans that were ineligible, will qualify under the new terms, moving many borrowers closer to forgiveness.

Another significant change is that military members can count time on active duty towards the 10 years, even if they had paused payments during that period.

Unfortunately, if you don’t meet the requirements, you’ll have to explore other alternatives to manage your loan. Two of the best options are student loan refinance and income-driven repayment plans. The best solution for you will depend on your short and long-term financial goals.

Here’s a look at how each works and the pros and cons of each.

Student Loan Refinancing

Refinancing allows you to change the terms of the original loan. You can shorten the term and clear your debt faster if you can afford the higher payment. You’ll save on interest over the shorter term too. Alternatively, if you’re struggling with payments, you can extend the terms to lower the monthly payments.

Before choosing this option, you should be aware of the major drawback of refinancing federal student loans. The federal government doesn’t offer this option. You can only refinance with private lenders. The new private loan won’t have any of the benefits or protections attached to the original federal loan.

Refinancing federal student loans is a good option only if you’re sure you won’t need any of the associated benefits or protections.

Income-Driven Repayment Plans

Income-driven repayment plans make your monthly payments more affordable. They do this by basing your monthly payment amount on your monthly income. You can choose from four income-driven repayment plans:

1. The Revised Pay As You Earn Repayment (REPAYE) plan sets your monthly payments to 10% of your discretionary income.
2. The Pay As You Earn Repayment (PAYE) plan is similar to the REPAYE plan. The difference is the monthly payments are never higher than the payments under the 10-year Standard Repayment Plan.
3. The Income-Based Repayment (IBR) plan sets the monthly payments to 15% of discretionary income. Only those who took federal student loans before July 1, 2014, are eligible for the IBR plan.
4. The Income-Contingent Repayment (ICR) Plan sets the monthly payments to 20% of your discretionary income. The maximum repayment period is 25 years, after which any outstanding debt will be forgiven.

Income-driven repayment plans help make the payments more affordable while still retaining the benefits of federal student loans. They are a better option for you if you prefer the comfort that the federal loan protections offer.