The idea of student loan forgiveness has always been taken in one of two ways: An amazing policy that will help usher in a new wave of highly educated, unburdened workers, or an enormous cost for taxpayers and an ineffective policy.
Whichever you think, one thing doesn’t change in this debate. The cost of college is high, and student loan debt is soaring as a result.
Right now, student loan borrowers owe over $1.4 trillion in outstanding debt. For many, repayment is a daunting task, but the prospect of student loan forgiveness shines a light of hope on repayment expectations.
Whether or not this optimism is unfounded is a good question. Student loan forgiveness requires more work than one would expect, and it isn’t just offered to anyone.
The Public Service Loan Forgiveness Program requires borrowers to sign up for a 10-year commitment at a potentially lower paying job, and payments still need to be made during that time. Forgiveness through an Income-Driven Repayment Program (IDR) puts borrowers on the hook for 20 or more years of payments before any debt is forgiven.
Even if a borrower can reach the point of forgiveness, they might get blindsided by a big tax bill as forgiven student loan balances via IDR plans are taxed as income.
Student loan forgiveness isn’t just a handout. It still requires work in all cases. Failing to understand the requirements of the different forgiveness programs could lead to disaster.
We wanted to figure out what student loan debtors truly knew when it came to student loan forgiveness.
The Student Loan Report polled 1,000 student loan borrowers who were currently working to repay their student loans and plan on qualifying for student loan forgiveness.
Here’s what they said.
This poll asked questions to student borrowers who were already in repayment. They have already had the opportunity to enter into a program that offers student loan forgiveness in some way. The recent proposed legislation that eliminates student loan forgiveness would not impact this respondent group. This legislation would impact future borrowers entering repayment, provided that the legislation ever passes into law.
With that out of the way, here are some of the more interesting results.
Student Borrowers Are Split 50/50 on Understanding Forgiveness
We asked our respondents how confident they were in their understanding of the qualification criteria for their forgiveness programs. The results were split down the middle:
A very slight minority (49.90 percent) of student loan borrowers in search of forgiveness believed they had a confident grasp on their student loan forgiveness program requirements. The remaining 50.10 percent, admitted to not fully understanding the criteria.
Which programs were they foggy on? We found that out. Here’s a breakdown of student loan forgiveness programs from our respondents. Each program is broken down according to the previous question.
Too Many Borrowers in IDR Don’t Understand the Tax on Forgiven Loans
When you have a student loan balance forgiven through an IDR plan, that balance is viewed as taxable income by the Federal government. In other words, if you had $100,000 in forgiven student debt, then you’d be in for a nasty tax bill.
We asked student loan borrowers enrolled in Income-Driven Repayment plans about that tax. Here’s what they said:
39.90 percent of respondents in IDR plans believed that the forgiven balance is tax-free which is wrong. Furthermore, another 11.68 percent of IDR participants didn’t think the forgiven balance was taxable or tax-free.
Combined, that is a slight majority of 51.50 percent. To be fair, a large group still understood the implications of a forgiven loan balance through IDR – 48.50 percent; however, far too many student loan borrowers did not understand.
Many Think Private Student Loans Are Eligible for Federal Student Loan Forgiveness
We asked a toss-up question about private student loan eligibility for student loan forgiveness via Federal programs. We were a little disappointed.
A majority of respondents (53.90 percent) thought that private student loans were eligible for forgiveness which is incorrect. Private loans are not held by the Federal government, so any federal program does not apply to these loans. Expecting student loan forgiveness from a private lender is not the wisest move, simply because private loans will never be forgiven.
Some Borrowers Don’t Understand the Current Political Climate
We asked our respondents what they thought about the Trump administration’s impact on student loan forgiveness. We wanted to know if they thought the new administration would increase the likelihood, or availability, of qualifying for student loans. Here what they said:
34.10 percent of respondents thought the new administration would make student loan forgiveness a better possibility in the future. If they’ve been paying attention, then they would know this is not the case at all. However, a solid majority (49.20 percent) do seem to understand current feelings about the program, while 16.70 percent don’t see any potential impact over the next few years.
Full Poll Results
Q1. Under which programs do you believe your student loans will be forgiven?
a. Public Service Loan Forgiveness (PSLF) - 25.80%
b. Forgiveness via Income-Driven Repayment (IBR, ICR, PAYE, REPAYE) - 40.20%
c. Federal Perkins Loan Cancellation - 9.80%
d. Teacher Student Loan Forgiveness - 9.90%
e. Military Student Loan Forgiveness - 4.80%
f. Other - 9.50%
Q2. In your honest opinion, do you feel confident that you understand the specific requirements to qualify for the forgiveness program selected in the previous question?
a. Yes, I do feel like I fully understand the program requirements - 49.90%
b. No, I don't feel like I fully understand the program requirements - 50.10%
Public Service Loan Forgiveness
a. Yes, I do feel like I fully understand the program requirements - 47.70%
b. No, I don't feel like I fully understand the program requirements - 52.30%
a. Yes, I do feel like I fully understand the program requirements - 50.30%
b. No, I don't feel like I fully understand the program requirements - 49.70%
Perkins Loan Cancellation
a. Yes, I do feel like I fully understand the program requirements - 56.10%
b. No, I don't feel like I fully understand the program requirements - 43.90%
Teacher Student Loan Forgiveness
a. Yes, I do feel like I fully understand the program requirements - 53.50%
b. No, I don't feel like I fully understand the program requirements - 46.50%
Military Student Loan Forgiveness
a. Yes, I do feel like I fully understand the program requirements - 54.20%
b. No, I don't feel like I fully understand the program requirements - 45.80%
a. Yes, I do feel like I fully understand the program requirements - 42.10%
b. No, I don't feel like I fully understand the program requirements - 57.90%
Q3. Which of the following accurately describes the tax consequences of student loan forgiveness?
a. The forgiven amount of student debt is considered tax-free - 38.90%
b. The forgiven amount of student debt is taxable as income - 45.80%
c. Neither of the options above apply - 15.30%
Public Service Loan Forgiveness Respondents
a. The forgiven amount of student debt is considered tax-free - 49.20%
b. The forgiven amount of student debt is taxable as income - 41.50%
c. Neither of the options above apply - 9.30%
Income-Driven Repayment Respondents
a. The forgiven amount of student debt is considered tax-free - 39.80%
b. The forgiven amount of student debt is taxable as income - 48.50%
c. Neither of the options above apply - 11.70%
Q4. Do you think President Trump's administration will take steps to make student loan forgiveness more or less likely for student debtors?
a. More likely - 33.40%
b. Less likely - 49.70%
c. Neither more or less likely - 16.90%
Q5. Are you currently making student loan payments?
a. Yes, I am currently making payments - 65.80%
b. No, I am currently making payments - 34.20%
Q6. Are private student loans eligible under federal student loan forgiveness plans?
a. Yes - 53.90%
b. No - 46.10%
Q7. Are you aware of the numerous student loan forgiveness scams taking place across the United States?
a. Yes, I am aware of the scams - 68.50%
b. No, I have not heard of the scams - 31.50%
The poll was run using an online survey company, Pollfish. 1,000 respondents were polled. To answer any of the questions, poll takers needed to pass a screener question that confirmed they were currently working to repay their student loans and planning to qualify for student loan forgiveness.