With higher education costs skyrocketing, many students are forced to take out large loans to earn a degree. If you’re feeling the burden of a high loan balance and wondering if there’s a better way to manage your federal student loan debt, the good news is that there’s help if you know where to look.
Student loan forgiveness programs can help offset this burden by offering partial or complete loan forgiveness under certain circumstances and for certain types of employment. In this article, we provide an overview of existing student loan forgiveness programs and how to qualify for them.
Loan forgiveness is when the lender — in the case of federal student loans, the federal government — forgives a portion of your loan balance so you no longer need to repay it. This is distinct from loan repayment assistance, which might be offered by certain organizations or employers who make all or part of your student loan payments on your behalf.
Primary student loan forgiveness options come from income-based repayment plans for federal student loans, the Public Service Loan Forgiveness (PLSF) program, and the teacher loan forgiveness program, although other forgiveness options might be offered in the future.
When you enter repayment on your federal student loans, you can default to the 10-year Standard Repayment Plan or select one of the U.S. Department of Education’s four income-based repayment plans that come with loan forgiveness after 20 or 25 years of extended federal student loan repayment. These four income-based plans work as follows:
Your discretionary income is the difference between your adjusted gross income and 150% of the poverty wages for your family size. If you are married and file jointly, your spouse’s income is included. You must also update your income information each year under these plans.
These options, however, really only lead to forgiveness for the lowest-income individuals with the highest loan balances. In most cases, a student loan borrower will end up paying off their loan balance under these plans before the end of the payment period is reached, which means that none of their loans will be forgiven.
In fact, you may even end up paying less in total by sticking with the 10-year Standard Repayment Plan, assuming you can afford the payments because the shorter repayment period means you pay less total interest.
You might hear the words forgiveness, cancellation, and discharge used interchangeably, but it’s important to note they don’t always mean the same thing. Your loan becomes forgiven or canceled if you’re no longer required to make payments due to your job or completion of an income-based repayment plan.
However, if you’re no longer required to make payments because of permanent disability or school closure, this is referred to as a loan discharge. Contact your student loan servicer to learn more about the options available to you.
The U.S. Department of Education offers a federal student loan forgiveness plan specifically for public service employees called the Public Service Loan Forgiveness Program (PSLF). If you qualify, this option is often one of the best. It requires that you enroll in one of the income-based repayment plans described above, except you’re granted loan forgiveness after only 10 years of payments instead of 20 or 25 years.
Note that this type of loan forgiveness only applies to federal student loans and not any private loans you may have taken out.
To qualify for PSLF, you must work in public service for 10 years while making consistent payments on your student loans through one of the income-based repayment plans. Types of employment that qualify for PSLF include:
To stay on track, you will need to submit a Public Service Loan Forgiveness Employer Certification Form annually or when you change jobs. Pay careful attention to the details on the StudentAid.gov website to ensure you meet all the requirements.
The Temporary Expanded Public Service Loan Forgiveness (TEPSLF) program extends the benefits of the PSLF program to those who would otherwise have qualified except that they had previously made loan payments under a nonqualifying payment plan. StudentAid.gov has a tool you can use to help see if you qualify.
In general, you must meet the following conditions to qualify for TEPSLF:
Qualifying monthly payments are those made after Oct. 1, 2007, for the full amount due as shown on your bill, and were paid no later than 15 days after your due date — all while you were employed full time by a qualifying employer.
Teachers who teach in areas that serve low-income schools or students for five consecutive years may qualify for the Teacher Loan Forgiveness Program. If you’re a teacher or plan on going into teaching, you may qualify if you meet the following eligibility requirements:
The maximum amount that can be forgiven is either $17,500 or $5,000, depending on the subject area taught (the higher amount is generally reserved for those who teach math or science at the secondary or special education level).
Paying off student loans is not for the faint of heart. If you’re looking for helpful information on how to manage student loan repayment, you’ve come to the right place. CollegeFinance.com seeks to offer you all the information you need to make informed financial decisions.
Visit our resources to learn more about federal student aid, PLUS loans, federal Direct Consolidation Loans, loan cancellation, forbearance, and deferment, as well as student loan repayment options today.