Will the Government Really Forgive Your Student Loans?
For the many Americans who are holding huge amounts of student loan debt, the prospect of having that debt suddenly wiped out probably seems too good to be true. Borrowers are likely familiar with deferral options, consolidation, or various repayment plans designed to lower monthly payments. What they may not know is there are a number of ways that qualifying Americans can have their entire balance of debt or a large portion of it completely forgiven.
The first thing to keep in mind is that private student loans aren’t eligible for federal relief programs. There is no widely available student loan forgiveness program for private loans, but contact your lender directly to ask about possible debt relief options such as consolidation or deferral without penalty. American Student Assistance (ASA) published an e-book describing more than 60 ways to achieve student loan forgiveness, including programs at the federal and state levels.
There are also numerous loan forgiveness programs, often provided by schools or the government, available to those working in medicine, veterinary medicine, law, education, and other fields. Each branch of the military has its own student loan forgiveness program as well. AmeriCorps, VISTA, and Teach for America participants can defer their student loan payments while they work with these organizations, and after a year of service, they are granted an award of $4,725 to pay down student loan debt.
If you are counting on a government program to wipe your debt clean in the future, keep in mind that the laws applicable to student debt forgiveness can change at any time. Do not plan your education based on an expectation of loan forgiveness. However, after reviewing the options available to you, if you think you may be eligible for a federal relief program, contact your loan servicer or fill out the necessary application, and you may be on your way to a clean slate. The following government programs provide opportunities for student loan forgiveness.
Public Service Loan Forgiveness (PSLF)
The PSLF Program is intended to encourage people to work in public service. Borrowers may qualify for forgiveness of the remaining balance of their Direct Loans after they have completed 120 payments under a qualifying repayment program while employed full-time by certain public service employers. Only payments made after October 1, 2007 qualify, and only loans received under the William D. Ford Federal Direct Loan Program are eligible for PSLF. Loans from the FFEL Program (Federal Family Education Loan) or Perkins Loan Program can be consolidated into a Direct Consolidation Loan to be eligible for the PSLF, but only payments on the newly consolidated loan will counts toward the 120 qualifying payments.
After reading the full eligibility criteria, you can apply for the PSLF by filling out an application, but not until after you have completed your 10 years of payments and public service work. Applications will become available in October 2017. In the meantime, you can fill out an Employment Certification form to track progress toward qualifying for PSLF.
Teacher Loan Forgiveness Program
Teachers can qualify for two types of loan forgiveness: teacher loan forgiveness for Direct Subsidized Loans, Direct Unsubsidized Loans, Subsidized Federal Stafford Loans, and Unsubsidized Federal Stafford Loans, or teacher cancellation specifically for Federal Perkins Loans. The Teacher Loan Forgiveness Program encourages people to become teachers and/or continue with this profession by offering forgiveness of up to a combined total of $17,500. To qualify, you must teach full-time for five complete and consecutive academic years in schools and/or educational service agencies that serve low-income families.
Under the Federal Perkins Loan Program, teachers can qualify for loan cancellation after teaching full-time for one academic year at a low-income school or in certain subject areas. Contact the school where you took out your Federal Perkins Loan for more information.
Perkins Loan Cancellation and Discharge
In addition to teacher cancellation, Federal Perkins Loan Program cancellations are available to the following qualifying individuals: volunteers in the Peace Corps or ACTION program (including VISTA), members of the U.S. armed forces (serving in area of hostilities), nurses or medical technicians, firefighters, law enforcement or corrections officers, Head Start workers, child or family services workers, professional providers of early intervention services, and more. After each complete year of service, a percentage of the borrower’s loan may be canceled. For many types of services, the total amount forgiven can be up to 100%. To apply, contact the school you attended when you received the loan.
Repayment programs that can lead to forgiveness
The three types of income-driven repayment plans are Income-Based Repayment (IBR), Income-Contingent Repayment, and Pay as You Earn Repayment (PAYER). IBR restricts the maximum monthly payments to 15% of discretionary income and offers forgiveness eligibility after 25 years of qualifying payments. With Income-Contingent Repayment, payment amounts are calculated every year based on gross income, family size, and federal loan balance. This repayment program also provides forgiveness eligibility after 25 years of qualifying payments. Monthly payments through PAYER will not exceed 10% of discretionary income, and forgiveness eligibility comes after only 20 years of qualifying payments.
While your payments will be lowered and you will have a chance at eventual forgiveness, these plans have downsides as well. Lowering your payments and/or extending your repayment period will mean you are likely to pay significantly more in interest over time. You also may be required to pay income tax on the amount of debt forgiven, according to the IRS.
Other types of forgiveness, cancellation, or discharge
The U.S. Department of Education also lists other situations in which you can have your federal student loan debt forgiven, canceled, or discharged. These include Closed School Discharge, Total and Permanent Disability Discharge, Death Discharge, Discharge in Bankruptcy (in rare cases), False Certification of Student Eligibility or Unauthorized Payment Discharge, and Unpaid Refund Discharge.
For more information, visit studentaid.ed.gov.