Student Loan Forgiveness Programs
Student loan debt has proven to be crippling for many students, but forgiveness programs are available in addition to cancellation and discharge of loans. Most loan forgiveness programs stem from employment in certain fields through either federal or state-based programs.
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More than 45 million people in the U.S. carry a total of over $1.5 trillion in student loan debt, while the default rate for federal student loans is 11.5 percent. Clearly, many people are struggling to repay their education debt. However, you might qualify for student loan forgiveness if you meet certain criteria.
Student loan forgiveness programs are typically programs that include paying off student loan debt as part of the benefits of working in certain jobs, particularly public service jobs. For example, being a public school teacher can allow for up to a certain amount of student loan debt to be forgiven or paid off.
It’s usually federal employment programs that provide loan forgiveness for federal loans. Some private-sector employees will also pay off employees’ loans as part of their recruitment and retention strategies, but private student loan forgiveness is very uncommon.
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What You Need to Know About Student Loan Forgiveness
Student loan forgiveness programs aren’t an easy way out of debt. They come with a lot of specific requirements as far as who is eligible and what they have to do to remain eligible.
Loan forgiveness isn’t the same as bankruptcy or simply not paying loans and defaulting. It’s also not the same as loan cancellation or different federal repayment plans.
And there are differences but also some similarities between the concepts of loan forgiveness, discharge, and cancellation. Under student loan forgiveness programs, your loan balance might be canceled once you meet specific requirements.
If someone can’t make loan payments because of certain circumstances like total and permanent disability, then it would be a situation referred to as student loan discharge. Some borrowers might also be eligible for a closed school discharge if their college closed while they were enrolled.
With these differences in mind, take a closer look at some options for student loan debt forgiveness and how to become eligible.
Types of Student Loan Forgiveness
There are various types of loan forgiveness programs available. They can be broken down into three general categories: federal loan forgiveness, state-specific loan forgiveness, and profession-specific. No matter what type of forgiveness you may be considering, it’s important to know how taxes work with student loan forgiveness.
Federal Loan Forgiveness
The most broadly utilized loan forgiveness programs are usually federal offerings. These federal student loan forgiveness programs are focused on certain fields, including teaching and the nursing and medical professions. Much like state programs, the requirements and guidelines for eligibility tend to be highly specific.
State-Specific Loan Forgiveness
Many states offer loan forgiveness programs that work in a way similar to federal loan forgiveness programs. Requirements usually include that someone is a resident of the state for a particular amount of time, and they will usually need to work in certain careers, often within the public sector.
Under state loan forgiveness programs, there may be requirements dictating not only the type of work someone has to do but also where they have to do it. For example, if it’s a state-based loan forgiveness program for teachers, the person may have to agree to work in certain underserved communities for a period of time.
Some private employers offer student loan debt forgiveness as a way to attract employees. These programs work in a way that’s similar to federal and state programs.
Specific Student Loan Forgiveness Programs to Consider
To find out if you might qualify for student loan forgiveness, you have to find out what’s available. Here are some federal and state-based loan forgiveness programs to get an idea of what you might find.
Public Service Loan Forgiveness
The following are key things to note about Public Service Loan Forgiveness:
- You must have made 120 qualifying monthly payments on your loans
- To qualify, the Employment Certification form has to be completed
- A qualifying loan is a non-defaulted loan received under the William D. Ford Federal Direct Loan Program
- It has to be at least 10 years after the first qualifying payment is made before someone can apply for PSLF
- Only payments made after Oct. 1, 2007, can be counted toward PSLF
The Public Service Loan Forgiveness Program (PSLF) is a federal program. This program is available to people who are employed by a not-for-profit organization (such as the Peace Corps) or government agency. Military student loan forgiveness can be achieved through the PSLF program.
Under this program, the remaining balance on Direct Loans is forgiven after 120 qualifying monthly payments have been made under a repayment plan while the person is working for a qualifying employer. Private student loans are not eligible.
There are limitations to this program beyond even just the employment requirements, including the fact that you must make a significant number of on-time payments already to be eligible, and your loans can’t be in default. You must also be enrolled in an income-driven repayment plan rather than a standard repayment plan.
For people who are interested in this program, they can complete their Employment Certification form and send it to FedLoan Servicing, which is the U.S. Department of Education’s loan servicer for this program.
Student Loan Forgiveness from an Income-Driven Repayment Plan
You can also receive student loan forgiveness after making a certain number of payments under an income-driven repayment plan. These plans limit your student loan payments to a certain percentage (usually 10% – 20%) of your discretionary income. After 20 or 25 years of payments under this plan, your remaining balance may be forgiven.
Below is a quick breakdown of the different plans and the lengths of time they will require you to make payments. For more information and eligibility requirements, please visit our income-driven repayment plans guide.
- Income-Based Repayment (IBR) enrolled before 7/1/14: Payments are 15% of discretionary income for 25 years.
- Income-Based Repayment (IBR) enrolled after 7/1/14: Payments are 10% of discretionary income for 20 years.
- Pay As You Earn (PAYE): Payments are 10% of discretionary income for 20 years.
- Revised Pay As You Earn (REPAYE): Payments are 10% of discretionary income for 20 years (undergrad loans) or 25 years (graduate and professional loans)
- 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.
Teacher Loan Forgiveness
The Teacher Loan Forgiveness Program has the following features and requirements:
- You have to teach full-time for five consecutive, complete years
- To be eligible, teachers have to work in low-income schools or an educational service agency
- Loan forgiveness is available for loan amounts up to $17,500
- This program can be used on Direct Subsidized and Unsubsidized Loans as well as Subsidized and Unsubsidized Federal Stafford Loans, but not for private student loans
- At least one of the eligible academic years you worked must have been after 1997-98
To be eligible for the federal Teacher Loan Forgiveness Program, you must meet certain qualifications beyond working full-time in specific schools. For example, you must obtain at least a bachelor’s degree, and receive full state certification as a teacher. You also can’t have had your certification or licensing requirements waived for any reason.
The school you work at (elementary school or secondary school) or the educational service agency where you’re employed has to be listed in the Annual Directory of Designated Low-Income Schools for Teacher Cancellation Benefits, which is published by the Department of Education every year.
The maximum amount of loan forgiveness available under this program is either $5,000 or $17,500, depending on what subject area is taught. The maximum amount is available for teachers who teach mathematics or science at the secondary level or for special education teachers.
Perkins Loan Forgiveness
There are Federal Perkins Loan cancellation programs available based on either eligible employment or eligible volunteer service.
The following are key things to know about Federal Perkins Loan cancellation:
- There are Perkins Loan Forgiveness options for teachers of up to 100 percent of their loan if they worked full-time in a public or nonprofit elementary or secondary school system
- Many other types of employment qualify for Perkins Loan Forgiveness, including being a law enforcement officer, military service, or being a nurse or medical technician
- This program is also available for people who become public defenders or serve in AmeriCorps VISTA or the Peace Corps
- For most professions, up to 100 percent of the loan can be canceled with five years of eligible work service
The Perkins Loan Forgiveness Program is very broad and applies to many professions and even volunteer work. Unlike the Teacher Loan Forgiveness Program, you don’t have to be certified or licensed for cancellation if you are a teacher. You do have to be considered a full-time employee, however.
The amount that’s canceled each year is incremental. For example, 15 percent of loan debt can be canceled per year for the first and second years that someone works in a qualifying position. Then, for the third and fourth years, 20 percent can be canceled, and for the fifth year, 30 percent can be canceled. The canceled amounts each year include interest that accrued during that year.
Author: Ashley Sutphin