How to Get Student Loan Forgiveness
Points of Interest
Student loans can be a considerable drag on your finances. There are multiple programs designed to ease the financial burden of the student loan on your budget.
Student loan forgiveness gives you an opportunity to stop repaying some or all of your student loan balance, or what is left of your student debt, and it will be “forgiven” — or showed as paid in full.
If you are one of the 45 million Americans who currently have a student loan, you are probably wondering how to get student loan forgiveness. Student debt in the U.S. has reached a whopping $1.6 trillion, which makes it the second-biggest consumer debt type in the country, topped only by mortgages. Yes, it’s higher even than credit cards and auto loans.
As tuition fees have been steadily increasing, so have the amount students need to borrow via student loans. For example, the average amount of student loans for the class of 2018 is $29,200, which is a 2% increase from the prior year, according to the Institute for College Access and Success. That’s why paying off your student loan student should be one of 10 Financial Steps to Take After Graduating From College.
What is student loan forgiveness?
There are three paths that can lead you to get your student debt relief. The first two options are available to federal loans only, while the last one applies both to federal and private loans.
The first is based on the type of career you choose, such as the Public Service Loan Forgiveness (PSLF) and Teacher Loan Forgiveness programs. Also, medical professionals, certain types of lawyers and members of the military have their own student loan forgiveness programs.
The second path is based on years of your timely payments under a qualifying repayment plan, such as income-driven repayment.
The third requires a set of extraordinary circumstances such as bankruptcy, disability, death, etc.
Tip: If you are no longer required to repay your loan due to your job, that’s forgiveness; circumstances such as a disability or the closure of the school may also qualify you for discharge.
Do I qualify to have my student loan forgiven?
There are multiple programs available, each with its own sets of requirements. For example, the PSLF program forgives the remaining balance after you have made 120 monthly payments under an income-driven repayment plan while working full-time for a qualifying employer, such as the government agency or organization or tax-exempt not-for-profit organization. Make sure you check various student loan forgiveness programs offered for different types of career paths.
How to get your student loan forgiven
The terms forgiveness, cancellation and discharge mean almost the same thing, but they still differ in a number of important features.
With cancellation programs, your student debt is canceled. For example, Federal Perkins Loans, in which your school and not the federal government is the lender, have a separate, career-based cancellation program. To be eligible to have all or a part of your Perkins Loan canceled based on your employment or volunteer service, you’ll need to be a full-time employee or a volunteer in a qualified career, such as a teacher in a high-need educational institution, nurse, law enforcement or corrections officer, member of the military or Vista or Peace Corps volunteer.
The discharge also means that you are no longer required to repay your student loan, but for reasons that are not related to your career choice. This type of student debt relief may be granted under certain extraordinary circumstances, such as bankruptcy, death, disability or school closure.
For example, in cases where your school closes while you’re enrolled, you may qualify for so-called closed school discharge. Also, if you declared bankruptcy you may have your federal student loan discharged, but it’s not a given. To be considered for a student loan discharge, you will need to file an “adversary proceeding,” which requests the bankruptcy court rule that repayment would cause undue hardship on you and your dependents.
Student loan forgiveness programs
There are several student loan forgiveness programs available and they are all related to the career that you’ve chosen. The PSLF program allows not-for-profit and government employees to have their federal student loans forgiven after 10 years of timely payments. The Teacher Loan Forgiveness Program aims to encourage teachers to take jobs at schools that serve low-income families. You’ll need to teach full-time at such a school for five consecutive years to be eligible to have from $5,000 to $17,500 in loans forgiven. There are also special loan forgiveness programs for doctors and nurses, lawyers practicing in public service, as well as each branch of the military.
Tip: Make sure you check the Teacher Cancellation Low Income directory regularly to see the updated list of eligible schools each year.
Other student loan forgiveness programs
If you don’t qualify for any of the previous options, there are still programs that you can apply for. For example, you may be eligible for income-driven repayment forgiveness. With federal student loans, you can choose between four main income-driven repayment plans, allowing you to limit your loan payments at a percentage of your monthly income.
If you stay current on your loan payments, you will be eligible for your loan balance to be forgiven after 20 or 25 years, depending on the plan. If your loan balance is large relative to your income, this is definitely an option to consider.
Things to be on the lookout for
It’s important to note that the tax treatment of different student loan forgiveness programs vary. For example, unlike PSLF, which is not considered income for tax purposes, the student loan amount that is forgiven under an income-driven repayment program is taxable. Make sure you understand the ins and outs of the tax treatment of the student loan forgiveness program before you apply for one.
Also, the statistics published by the US Government Accountability Office show that 99% of the PSLFP applicants are rejected. That shouldn’t prevent you from applying, though — especially considering that this sad statistic has been gaining increased visibility lately, which may lead to a change in the treatment of applications.
Alternatives to student loan forgiveness programs
If you don’t qualify for some of the student loan forgiveness programs, there are other alternatives available to lessen the student debt burden.
Refinancing is one useful alternative to student loan forgiveness programs. When refinancing, you replace your old student loan with a new one, which will come with a new interest rate and term. It could be a useful option for those with private debt who don’t qualify for a federal student loan forgiveness program. Make sure you check best student loan refinance rates to see what the best fit is for your needs.
Tip: It makes financial sense to refinance loans when rates are low or right before they start to climb again.
If you have multiple federal student loans, you can consolidate or combine them into one loan to have a single monthly payment instead of multiple payments. Through consolidation, you can lengthen your loan term and lower your monthly payments.
Tip: Make sure you consolidate through a direct consolidation loan to keep all your federal student loan benefits!
If you are struggling with your loan payments, you can also apply for forbearance with your loan servicer. Forbearance allows you to temporarily halt payments for a specified length of time. This can be helpful in a pinch, but keep in mind that interest continues to accrue during forbearance.