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‘I feel deceived’: After 20 years of paying my student loan, I discovered I don’t qualify for forgiveness. My loans total $167,000. What can I do?

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Dear Moneyist,

I took out loans for professional/graduate school during the years 1993 to 1996. I took out about $54,000 in loans. In 2002, I consolidated all my federal loans. The balance is approximately $167,000. I have been paying between $350 and $1,100 per month for the last 20 years.

I believed that I was under an income-driven repayment plan, but recently my loan servicer was changed from Navient
NAVI,
-2.03%

to Aidvantage, and I was able to view my loan information and see different payment plans under IDR. It turns out that I am not under any IDR.

I thought that after 20 to 25 years of payments, any loan balance would be forgiven. I am very disappointed that I was not under one of these plans, and I feel deceived.

Now with the Biden administration announcing student-loan cancellations, I do not know if I should apply for one of the IDR plans now — though it would seem unfair to start over, as I have been in regular repayment since 2002. Or do I wait and see if I qualify for cancellation via Biden?

Conflicted

Dear Conflicted,

It’s a small consolation, but you are one of at least 2 million people who believed they were on track for loan forgiveness, but realized that their loans did not qualify. It’s a bitter pill to swallow. The student-loan forgiveness program is a complex and bureaucratic process ripe for error.

Income-driven repayment (IDR) plans, for those who are unfamiliar with them, allow student-loan borrowers to repay their debt as a percentage of their income, rather than as a standard monthly payment related to the size of the loan and the interest rate.

Earlier this year, Navient pledged to cancel $1.7 billion in private student loans as part of a settlement with 39 attorneys general and student-loan giant Navient. Roughly 66,000 borrowers will see their private student loans canceled.

Your loan amount has more than tripled over the last 25 years. This suggests a prolonged period of nonpayment, either through economic hardship deferment, unemployment deferment and general forbearances, and/or your falling behind on payments and incurring charges.

“Your loan amount has more than tripled over the last 25 years. This suggests a prolonged period of nonpayment.”

That may hurt your chances of forgiveness. The Biden administration announced this week that it will count all payments made on loans in an income-driven repayment plan toward the 20- or 25-year forgiveness at the end of an income-driven repayment plan, says student-loan expert and author Mark Kantrowitz.

As he points out: “$167,000 in debt at 7.2% (the average interest rate for loans made in 1993-96) yields a monthly student loan payment of about $1,100 with a 30-year term. Graduated repayment would have a lower payment initially, but it would be at least $1,000.”

The Education Department, as you have seen, said this week that it would instigate a new review of its student-debt portfolio in an effort to correct for past mistakes that denied millions of borrowers credit toward student-loan forgiveness.

This will lead to immediate cancellation of debt for approximately 40,000 borrowers under the Public Service Loan Forgiveness program, and at least three years of additional credit for more than 3.6 million borrowers seeking income-driven repayment, the department said.

Navient made the decision to stop servicing federal student loans in the Direct Loan program. So your servicing portfolio was transferred to Aidvantage, which is in turn owned by Maximus Education LLC, and operates a Direct Loan program.

The Direct Loan program offers four IDR plans: ICR, IBR, PAYE and REPAYE. “Since his loans were borrowed before Oct. 1, 2007, he is not eligible for PAYE,” said Kantrowitz, the author of “How to Appeal for More College Financial Aid.”

IBR or REPAYE will yield the lowest monthly loan payment, he adds, depending on whether you are married and file separate or joint returns with your spouse, whether you have any loans from graduate school and whether your income exceeds your student-loan debt.

You likely need an IDR plan. “Switching into an income-driven repayment plan vs. a possible future loan forgiveness from President Biden is not an either-or situation,” Kantrowitz says. “Plus, President Biden has called for $10,000 in loan forgiveness, not full forgiveness.”

Your situation is clearly complicated, and not a simple case of student-debt forgiveness. I’m sorry that it has been hanging over you all of these years. The Institute of Student Loan Advisors and National Foundation for Credit Counseling are two nonprofit organizations that may offer you more hands-on help.

You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com, and follow Quentin Fottrell on Twitter.

Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.

The Moneyist regrets he cannot reply to questions individually.

By emailing your questions, you agree to having them published anonymously on MarketWatch. By submitting your story to Dow Jones & Company, the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.

Read more:

‘Please help!’ It seems like I have been paying my child’s student loan forever. How much longer must I pay it off?

‘The weight of this debt is crushing’: I’m 74, and a retired speech-language pathologist with a student-loan debt of $200K. Am I obliged to pay it off?

Do I resist refinancing my $160,000 federal student loan at a lower rate in the hope there will be loan forgiveness? What are the chances it will happen?

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