Complete Guide to Student Loan Forgiveness Programs
The Student Loan Debt Problem
Student loan debt looms over many young college graduates like a black cloud. It follows them everywhere with constant reminders of the hardships ahead. The statistics are staggering – student borrowers owe more than $1.5 trillion. And 11% of those borrowers are delinquent in payment. For many young people, student debt seems inescapable. And lately, their loan servicers have only been making things worse. With so much of income devoted to debt payments, how can young people focus on the future? Where can funds for retirement saving or a house down payment come from?
The news isn’t all bad, though. Student loan debt has become a major talking point for both political parties. Many borrowers are also getting aid from government programs. In fact, some student loans might be eligible for complete forgiveness – but it depends on where you work. Today, we’ll take a look at the full spectrum of student loan forgiveness programs, including Public Service Loan Forgiveness.
Student Loan Forgiveness
“Forgiveness” is interpreted in three different ways according to the federal government:
- Discharge – An option if the borrower becomes permanently disabled or the school they attended falsely stated their ability to teach skills necessary for employment. If your school closed due to legal issues, you might be eligible for a loan discharge.
- Cancellation – For Perkins loan borrowers only. Cancellation is possible if you work in a qualified public service position for five years. Canceled loans won’t be counted as income for tax purposes.
- Forgiveness – Borrowers with direct loans might be eligible for forgiveness depending on where they work. The bulk of federal relief programs are classified as forgiveness, but not all types have the same tax implications.
Note that we’ll only be discussing federal loan forgiveness programs here. Why? Because private loan forgiveness programs don’t really exist. Private lenders don’t have much incentive to offer any help at all, let alone forgiveness. The only two ways to get private loans forgiven are death or disability. Even then, the lender may pass the loans on to your co-signer or spouse.
Avoiding scams is critical when navigating the complex channels of student loan forgiveness. If it sounds too good to be true, it always is. Don’t fall for high-pressure sales tactics! Many firms will claim to offer some type of student loan forgiveness, but what they really do is sign you up for already existing federal programs. And then charge you a fee for something you could very easily have done yourself. Gross, huh?
In order to help you avoid scammers and best understand all of your options, we have compiled a complete list of student loan forgiveness options below. If you have federal loans and a history of timely payments, one of these programs might be your ticket out of debt. Also, remember the situation surrounding student loan forgiveness is fluid and big changes could be on the horizon. Recently, the Trump administration released a proposal to merge all income-based repayment plans into one single plan with a flat rate. Loan forgiveness would also be extended to all borrowers. We will be updating this post with the latest information as it becomes available.
Public Service Loan Forgiveness
This is the big one. The Public Service Loan Forgiveness (PSLF) program gives borrowers a chance to get completely free from their debt burden. But, you must work in a qualified place of employment. For these borrowers, it’s not what you do, but where you work. Your employer must be a government organization at the local, state, or federal level or a tax-exempt nonprofit organization under Section 503(c)(3) of the IRS code. Labor unions and partisan political groups don’t qualify.
Some of the employers that do qualify for PSLF are:
- Public schools
- Public health facilities
- Emergency management
- Law enforcement agencies
- Military branches
- Public libraries
If you work full-time in any type of public sector, there’s a good chance you qualify. For more info, check out the qualifying employment section on the federal government’s PSLF page.
If your job qualifies for the program, you can now start the hard part – making 120 qualified payments. Yes, the word ‘qualified’ pops up a lot when dealing with these programs. In this case, a qualified payment means an on-time payment made through one of the four federal income-based repayment plans. Those plans are:
- Pay As You Earn Repayment (PAYE) – Payments reduced to 10% of the borrower’s discretionary income and loan term increases to 20 years. Only borrowers who took out loans after October 2007 are eligible. PLUS loans aren’t eligible here either.
- Revised Pay As You Earn Repayment (REPAYE) – Payments are also reduced to 10% of the borrower’s discretionary income under REPAYE. But loan terms are 20 years for undergraduate degrees and 25 for graduate degrees. Again, PLUS loans are not eligible, but all Direct loan borrowers are.
- Income-Based Repayment (IBR) – Payments get reduced to 10% of borrower’s discretionary income if loans were taken out after July 2014. Payments are 15% of income if loans were taken out before July 2014. New borrowers get 20 years to pay, non-new borrowers, get 25 years.
- Income Contingent Repayment (ICR) – Payments are either 20% of discretionary income or the equivalent of a fixed 12-year repayment plan adjusted for income, whichever is less. Loan terms under ICR plans will be extended to 25 years. This is the only viable plan for PLUS loan borrowers and they must be consolidated before entering the program.
You’re technically eligible for loan forgiveness on a standard repayment plan, but since standard repayment plans end in 10 years, there would be no loan balance left to forgive. The reform proposal released by the Trump administration in early 2019 seeks to consolidate these four programs into one with a flat payment rate of 12.5% of discretionary income. Under this proposal, borrowers on ICR and IBR plans would benefit but PAYE and REPAYE users would see payments increase.
If you work full-time in a qualified place of employment and make 120 qualified on-time payments (they don’t need to be consecutive) on one of the four income-driven repayment plans, your loans will be forgiven and you won’t owe a penny in taxes.
Stay on top of your paperwork! The PSLF program is a big relief for borrowers, but getting accepted isn’t exactly easy. You’ll need to recertify your income and family size every year or face stiff consequences. You’ll also need to fill out the Employment Certification for Public Service Loan Forgiveness form each year too. It’s the federal government, were you not expecting a mountain of paperwork?
You can’t apply for the actual PSLF program until after your 120 qualified payments are made and be prepared to show 10 years of documentation when the time finally comes. You’ll need to fill out and submit this application to get the process started. Be prepared to fight too, since the Department of Education and loan servicers have a history of denying pretty much everyone at first. The Consumer Financial Protection Bureau has recently set its sights on Navient, one of the more insidious loan servicers. If your federal loans were serviced through Navient, make sure your PSLF file is always up to date but also keep an eye on this lawsuit.
Teacher Student Loan Forgiveness
School teachers have an additional program working in their favor. Under the Teacher Student Loan Forgiveness plan, any educator working at an elementary or secondary school in a low-income district will be able to knock a big chunk off their loan balances after five years. To be eligible, you must be a “highly qualified teacher” (there’s that word again). What makes a teacher highly qualified?
- Bachelor’s degree from an accredited university
- Full certification in the state they’re teaching in
- No emergency waivers or provisional certificates
You must teach in a classroom or have a classroom-like curriculum (ie. special education teachers) and your five years must be taught consecutively to count. Only full years count too, although there are some exceptions. Your school must appear in the Teacher Cancellation Low Income Directory, which has an easily searched online catalog. A new directory is published each year, so you’ll need to check it annually.
Eligible teachers will be awarded either $17,500 or $5,000. Yes, it’s either one or the other with no in-between. To get the full $17,500 in forgiveness, you must teach math or science in a secondary school or teach special ed to students with disabilities. If you taught any other subject, you’re only eligible for $5000 in forgiveness. Teaching years counted towards the Teacher Loan Forgiveness Program will not also be counted toward Public Service Loan Forgiveness. You can get assistance from both programs, but you’ll need to teach for 15 years.
Direct and Stafford loans are the only types of loans eligible for this program. If you have PLUS or Perkins loans, you, unfortunately, don’t qualify. If you’ve completed five years at low-income school and think you’re now eligible for Teacher Loan Forgiveness, you’ll need to apply with this form.
NURSE Corps Student Loan Repayment Program
If you’re a registered nurse, nurse practitioner, or nursing faculty member with student debt, you could have up to 85% of your loan balances forgiven if you meet certain requirements. To qualify, you must:
- Have a nursing degree from an accredited university
- Work full time for two years in a Critical Shortage Facility or school of nursing
Eligible nurses will have 60% of their loan balances forgiven after completing their two mandatory years. Additionally, there’s an option for a third year that would reduce the original student debt balance by another 25%. If you think you qualify, head over to the Health Resources and Services Administration (HRSA) website and submit an application.
Military Student Loan Forgiveness
Each branch of the military has an assistance program for student loan borrowers, some for various states of deployment. For example, the Army has several programs for federal loan forgiveness, including:
- Active Duty College Loan Repayment – Borrowers must serve for three years, decline the GI bill, and perform a Military Occupational Speciality (MOS). The borrower must also score a 50 or better on the Armed Services Vocational Aptitude Battery (ASVAB). The Army will repay 33.3% of the principal annually or $1500, whichever is greater, up to $65,000 over three years.
- Army National Guard College Loan Repayments – Borrowers must serve for six years in the National Guard, decline the GI bill, score a 50 or more on the ASVAB, and perform a MOS at pay grade E4 or below. Repayment terms are the same for active-duty participants.
- Army Reserve College Loan Repayment – Same eligibility requirements as National Guard participants, but repayment terms are 15% or $1500 with a maximum of $20,000 after each year of service.
The Air Force offers a similar program to Judge Advocate Generals (JAGs), offering $65,000 in loan forgiveness over three years for qualified participants. Additionally, many JAGs already qualify for Public Service Loan Forgiveness.
The Navy has a three-year program too, also paying $65,000 over three years. Check out the eligibility requirements at the Navy Recruiting website. Note that unlike Public Service Loan Forgiveness, military programs are subject to income taxes.
State Student Loan Forgiveness Programs
Many states offer their own form of student loan forgiveness for borrowers. Some base these programs around attendance of a state-sponsored school, like the Public Interest Law Loan Forgiveness Fund, which gives assistance to the University of South Carolina law graduates working in a public interest field for at least two years.
Other programs seek to fill underserved areas by offering student loan forgiveness to professionals if they move there. In Pennsylvania, doctors can get up to $100,000 in loan forgiveness if they work in a pre-approved area with an underserved population.
Getting Relief From Student Loans
Student loan debt can feel inescapable, but programs are out there to help the most vulnerable borrowers. Most programs only work for federal loan borrowers, so private loan borrowers must consider options like consolidation or refinancing. But if you work in a field like education, healthcare, or the military and want to reduce your debt burden, check out some of the programs mentioned above. Filling out one application could change your life for the better.
June 4, 2019
Mark Gibson is a personal finance consultant and wealth-investor. Mark brings his top-notch financial analysis to his work at FiGuides as our lead consumer finance editor.