Federal Student Loan Forgiveness: Debt Relief Programs
There are several ways you can get your federal student loans forgiven. It’s not easy, but if you find yourself in a difficult financial position or in a qualified career field, you may be exempt from paying your loans back.
Student loan debt is without a doubt the most stubborn debt that we can take on, but it’s often necessary. Student loan debt can weigh on your finances for decades. And if it’s not paid as agreed, it can severely hamper your efforts to get further credit, rent an apartment, get certain types of jobs, or even collect your federal income tax refund.
While this might sound dire, there’s still some good news. You’ll be in a much better position with $50,000 of student loan debt than you would with the same amount in credit card debt. With credit card debt, you can pay off the minimums but you’re never really getting ahead, but that’s not the case with student loans.
There are several ways you can get your federal student loan debt forgiven. It’s not, however, an easy thing to do and these options don’t apply to private student loans.
The federal government’s position on education is that it’s you and your family’s job to bear the greatest financial burden for your college education, and the U.S. Department of Education expects loans that it offers to be paid back. In fact, in most cases, not even bankruptcy can get the loans wiped off your obligations.
With student loan forgiveness programs, the government basically says you no longer need to pay the loan off. The requirements are strict, and if you’re successful, you may need to pay taxes on the amount that is forgiven since the government sees that as income. Each situation is different, however, so it’s important to understand how it all works.
In this guide:
- Public Service Loan Forgiveness
- Forgiveness with Income-Driven Repayment Plans
- Perkins Loan Cancellation
- Teacher Loan Forgiveness
- Discharge Programs
- Discharge Through Bankruptcy
Public Service Loan Forgiveness
The Public Service Loan Forgiveness program, or PSLF, is a federally-run program for those who have careers in public service. It’s an incentive to encourage college graduates to use their newly-gained skills and degrees to benefit the public. Those who qualify can get a portion of their student loans forgiven for qualifying loans.
To be eligible for student loan discharge through this program, loan borrowers need to meet the following criteria:
1. Be Employed in the Public Service Sector.
Most public service jobs are found in the government, such as working as a social worker, or in the non-profit or even volunteer sectors. You need to show that you are currently employed with a qualified employer and that all of your payments are being made during that time. You can change employers as many times as you want, as long as your new employer is also within the public service sector.
Serving the military such as the Army, the Air Force or the National Guard can qualify you as working the public service sector as well.
2. Make 120 Qualified On-Time, but Not Necessarily Consecutive, Payments to Your Loans.
You cannot be considered for the PSLF program until you’ve made 10 years’ worth of qualifying payments.
However, for those monthly payments to count, they need to be made while you’re working in public service. As a result, if you’re even considering applying for PSLF, it’s important to keep track of your payments and employment while you’re making them.
If you leave public service, then return later, only the payments you made during your time in service will count toward your PSLF requirement of 120 payments.
3. Volunteering With a Federally-Recognized Organization.
If you can’t or don’t want to get a long-term job in the public service sector, you can also volunteer for the Peace Corps or another organization that has full-time volunteering opportunities. Before choosing one of these, however, make sure that it’s one that the PSLF program will recognize as valid for keeping track of your payments.
Which Federal Loans Qualify?
Not all federal loans qualify for the PSLF program.
If you received any loans through the Federal Family Education Loan (FFEL) program or the Federal Perkins Loan program, you’re ineligible for PSLF. There’s a loophole of sorts, however: if you consolidate your Perkins or FFEL loan into a Direct Consolidation Loan, they are eligible.
None of your previous payments on those loans will count toward your 120-payment requirement; only post-consolidation payments, made while employed in the public service sector, will be counted. Plus loans typically qualify under this program, however.
Under the PSLF program, you will make 120 payments to your loan servicer before you can apply for forgiveness, but once that requirement is met, the remainder of your loan balance will be considered paid off.
For the average student with $32,000 in student loan debt, 10 years of payments with interest will reduce it to about two-thirds of the original balance, which is paid off at the end of the 120-month period.
Forgiveness With Income-Driven Repayment Plans
Even if you don’t qualify for PSLF, you still can get your loans forgiven after a set amount of time under an income-based repayment plan.
There are five income-based plans for federal loans, and they limit your student loan payments to between 10% and 20% of your discretionary income. That’s defined as the money left over after you’ve paid for shelter, food, clothing, and medical insurance. Each plan has its own forgiveness criteria:
- Income-Based Repayment (IBR) enrolled after 7/1/14: Payments are 10% of discretionary income for 20 years, after which you are eligible for forgiveness of the remaining balance.
- Pay As You Earn (PAYE): Payments are 10% of discretionary income for 20 years before forgiveness eligibility.
- Revised Pay As You Earn (REPAYE): Payments are 10% of discretionary income for 20 years (undergrad loans) or 25 years (graduate and professional loans). You can then apply for forgiveness.
- Income-Contingent Repayment (ICR): Payments are 20% of discretionary income or the amount you would pay on a repayment plan with a fixed payment over 12 years, adjusted to your income. Payments must be made for 25 years, and then the remaining balance can be forgiven.
Perkins Loan Cancellation
The terms cancellation, forgiveness, and discharge all mean the same thing — you no longer have to pay your loans for whatever reason. The Perkins Loan Cancellation effectively forgives or cancels your Perkins loans, which aren’t eligible for PSLF, if you are employed in certain fields.
Perkins Loan Cancellation is available to those in the following fields:
- Teaching and eligible educational service
- Nurse or medical technician
- Early Intervention services for the disabled
- Faculty at a tribal college or university
- Speech pathologist in a Title I-eligible elementary or secondary school
- Librarian with a master’s degree in a school or public library
- Law enforcement or corrections
- Attorney in federal or community public defense
- Family Services to high-risk communities
- Head Start programs at an elementary school
- Military service in a hostile fire or imminent danger pay area
- Peace Corps or AmeriCorps VISTA
Which Federal Loans are Eligible?
This program is only available to borrowers with a Perkins Loan. Direct loans, also known as Stafford Loans, are not eligible. Private loans are also not eligible. If you had a Perkins Loan but consolidated, refinanced, or otherwise altered the loan, it is also no longer eligible. It’s important to understand what you are giving up before you consolidate or refinance.
In most cases, you’ll need to make up to five years’ worth of payments while employed in a qualified field. Upon serving five years in that field, you could be eligible for up to 100% of the remaining balance to be canceled.
Teacher Loan Forgiveness
The Teacher Loan Forgiveness program seeks to incentivize college graduates to work as teachers in low-income and high-risk schools. In return for service in a low-income area, you could be eligible for up to 100% of your student loan balance forgiven.
In order to get your loans forgiven in this program, you’ll need to meet the following criteria:
- You must have a Perkins Student Loan, originated after Oct. 1, 1998, and no balance on a Direct Loan in 1998.
- You must be considered a “highly qualified teacher,” which means you have at least a bachelor’s degree, as well as state certification as a teacher. You also must not have had your certification requirements waived on an emergency or provisional basis.
- You must be teaching in the subjects of mathematics, science, foreign languages, bilingual education, or any other field that your state education agency deems there to be a shortage of teachers.
Which Federal Loans Qualify?
The Teachers Loan Forgiveness program is geared toward borrowers with Perkins Loans. Typically, Perkins loans aren’t eligible for income-based repayment programs and have fewer options available.
This is one of the ways the federal government compensates for that. Those who are willing to teach in low-income or high-risk neighborhoods are rewarded for what often ends up being a tough job by being able to get their loans forgiven.
Each full academic year or equivalent that you teach in a qualified area or serve as a librarian in a school, you are eligible to have a portion of the loan amount canceled.
The school itself determines whether you are considered a full-time teacher, and that status is what creates your eligibility. This eligibility is good regardless of the type of school that employs you. Private school, charter schools, and public schools are all equally able to offer you qualified full-time status.
The Total and Permanent Disability Discharge is offered to borrowers who can prove that they are totally or permanently disabled. The disability can be one of three types, and each type requires its own documentation.
- Veterans Administration – If you have a VA disability determination of 100% or more that is service-connected, you can apply for your loans to be discharged, which means you won’t have to make any more payments.
- Social Security Administration – If you are a current recipient of Social Security Disability Insurance or Supplemental Security Income (SSI), you can apply for a discharge if you can prove that your next disability review is five to seven years or more from the date of your last disability determination.
- Physician’s Certification – You can ask for a discharge based upon a physician certifying that you’re unable to engage in substantially gainful employment due to a physical or mental impairment that can be expected to result in death, has lasted for at least 60 months, or can be expected to last for at least 60 months.
Like the other two types of disability discharges, the physician’s certification renders you eligible to have the remainder of your student loan balance discharged.
Other discharge programs include a death discharge, which means that your student loan balance is discharged upon your death. This type of discharge can offer peace of mind for your loved ones if you pass away.
Discharge Through Bankruptcy
Typically, filing bankruptcy isn’t enough to get your student aid debt forgiven or discharged. In fact, it’s notoriously difficult to accomplish. It can, however, sometimes be accomplished if you follow the correct procedure.
To even request a bankruptcy discharge of your student loans, you must prove that you meet three criteria — and they’re not easy. First, you’ll need to prove that continuing with your student loan repayment plan will put you in a level of extreme poverty.
The government defines extreme poverty differently than the average person. Not being able to purchase the latest smartphone, or having to live in a tiny apartment, isn’t considered extreme poverty, and so this bar is a hard one for many borrowers to meet.
In addition, you’ll need to prove that you have a disability that will continue into the future, almost indefinitely. Lastly, you need to have made at least five years of on-time payments. Discharge through bankruptcy is to assist those who truly need it instead of those who simply want to get out of paying their loans back. So the process can be difficult, but it can be done on rare occasions.
Author: Dave Rathmanner
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