Oct 10, 2017
Student Loan Forgiveness & Discharge
Student loan forgiveness is a process by which you can shed some or all of your educational debt. In exchange, you enter certain fields or choose certain careers. Typically, it is only applicable to federally funded student loans and not to private education loans.Find Out If You Qualify
How To Get Your Student Loans Forgiven: Three Paths
There are three ways to have student loans forgiven and none of them are easily attainable. The first is based on the type of career you choose. The second is based on you how many years you make on-time payments while enrolled in a qualifying repayment plan. The last one requires a set of extraordinary circumstances that rarely come into play, but nonetheless could result in loan forgiveness. The first two are available for federal student loans only and the last one is achievable for federal or private student loans.
Public Service Loan Forgiveness Program (PSLF)
Public Service Loan Forgiveness was created by the College Cost Reduction and Access Act of 2007 to lessen the burden of student loans for highly-qualified graduates and encourage them to pursue careers in the public service sector.
This forgiveness option applies solely to Direct Federal Student Loans. Private student loans are not eligible for Public Service Loan Forgiveness. To receive loan forgiveness under this program, you must be a full-time employee (at least 30 hours per week) in public service job and make 10 years of on-time monthly payments (120) after consolidating your federal loans in a qualified repayment program.
Qualifying Public Service Jobs:
- Any job in a government organization at the federal, state, local or tribal level
- Not-for-profit organizations that are designated tax-exempt under Section 501(c)(3)
- Other not-for-profit organizations that are not tax-exempt but provide a qualifying public service
- Full-time AmeriCorps and Peace Corps volunteers
Common public service careers are in education, law enforcement, health, public law, and veterinary medicine.
Qualifying repayment plans for loan forgiveness
- Income-Based Repayment Plan (IBR)
- Income-Contingent Repayment Plan (ICR)
- Pay As You Earn Repayment Plan (PAYE)
- Revised Pay As You Earn Repayment Plan (REPAYE)
Note that the 10-year Standard Repayment Plan is considered a qualifying plan, but because it is a 10-year plan, there won’t be any funds left to forgive. If you plan to enroll in a PSLF program, you need to enroll in a repayment plan that extends your loan term beyond 10 years.
As of the summer of 2017, no one has received loan forgiveness under this plan. More than 550,000 borrowers are expecting to have their loans forgiven, and the first group to qualify for Public Service Loan Forgiveness will meet the final requirement in October 2017.
President Trump has proposed changes to this program, but as of July 2017 none of the changes have been legislated. For more information on this path to loan forgiveness, visit Public Service Loan Forgiveness.
Teacher Loan Forgiveness Program
The Teacher Loan Forgiveness program was created in 1998 to encourage teachers to take jobs at elementary schools, secondary schools and educational service agencies that serve low-income families. The U.S.
Department of Education publishes the list of low-income elementary schools and secondary schools each year.
You need to teach fulltime at a qualifying school for five full and consecutive years. Then you are eligible to have up to $17,500 in loans forgiven.
Only Direct subsidized and unsubsidized loans qualify. PLUS loans do not qualify. Apply to the program by completing the Teacher Loan Forgiveness Application and submitting it to your loan servicer.
Federal Perkins Loan Cancellation
Federal Perkins Loans have a separate cancellation program because your school is the lender, not the federal government. To apply, contact the financial aid office at the school that administered your Perkins Loan and request the application forms. You need to be a full-time employee in a qualified career.
Qualifying Perkins Loan Cancellation Jobs:
- Soldier in hostile fire or imminent danger pay areas
- Law enforcement or corrections officer
- Nurse or medical technician
- VISTA or Peace Corps volunteer
- Librarian with a master’s degree (employed by Title 1 eligible schools or public libraries that serve those schools)
- Attorney employed in a federal public or community defender organization
- Employee for public or nonprofit organization that serves high-risk children and their families from low-income communities
- Staff member for educational component of the Head Start program
- Staff member for a state-licensed or regulated pre-kindergarten or child care program
- Professional provider of early intervention services for the disabled
- Speech pathologist with a master’s degree (employed by Title 1 eligible schools)
- Special education teacher for children with disabilities in public, other nonprofit schools or educational service agency
- Teacher in a field designated by the state as teacher shortage areas (math, science, foreign language, bilingual education etc.)
- Teacher in a designated educational service agency that serves students from low-income families
- Faculty member at a tribal college or university
You can have up to 100% of your Perkins Loans cancelled or broken down over five years.
- 15% per year for the first and second year
- 20% for the third and fourth years
- 30% for the fifth year
Loan Forgiveness after 20 or 25 Years of On-Time Payments
The second type of loan forgiveness is based on how long you make on-time payments, under a qualifying repayment plan. You do not need to be working in a specific career field to qualify for loan forgiveness based on your repayment history.
Generally, you will make on-time payments for 20 or 25 years, depending on the repayment plan. The remaining loan balance is forgiven after that period of time. Be aware the amount forgiven is considered taxable income.
The Pay As You Earn Repayment Plan qualifies you for loan forgiveness after 20 years of on-time payments. This repayment plan will generally offer you the lowest monthly payment. To enroll in this repayment plan, you must demonstrate a financial hardship. You may remain in the program, however, after the hardship has resolved.
The Revised Pay As You Earn repayment plan is similar to the PAYE plan, only you don’t need to demonstrate financial hardship to qualify for the program.
Forgiveness based on 20 or 25 years of on-time payments is only available to Federal Student loans. Private student loans do not qualify.
Student Loan Discharge
There's one additional way to achieve student loan forgiveness which is called discharge. It is generally awarded by a judge and can apply to both Federal and private student loans. Discharge is granted under very rare circumstances.
Circumstances for Student Loan Discharge:
- Permanent disability or death
- Victim of identity theft
- Unauthorized signature of the loan by the school without your knowledge
- False certification of student eligibility
Discharging student loans through bankruptcy is extremely rare. It is technically not impossible, but demonstrating undue hardship is very difficult. Read more about the differences between forgiveness and discharge.