5 Student Loan Forgiveness Programs

Student Debt

Student loan debt can be a millstone around your neck. Sadly, praying for a lottery win or a big inheritance won’t normally take care of the problem but you might be able to get some of that student loan debt forgiven.

There are several programs available to have your student loan debt forgiven aimed at those who work in public service, education and other professions. There are even individual states which will help graduates sort out their debt with loans.

Student loan forgiveness can be a great option to take care of some or all of your debt without needing a big windfall to clear the balance.

Here are 5 of the most popular student loan forgiveness programs today:

Public Service Loan Forgiveness Program

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Federal Student Aid, which is part of the Office of the U.S. Department of Education, offers a Public Service Loan Forgiveness Program. It is designed to help those people with student debts that work in public service jobs. This includes non-profit work. The program works by forgiving student debt after the student has made repayments through the program for 10 years (120 payments in total).

Who Qualifies for This Program?

To qualify for the program you must be a full-time employee of a federal, state or local government agency or a full-time employee at a non-profit organization which has a 501 (c)(3) designation. The program does not cover those people who work for a non-profit body carrying out religious-based employment.

Which Loans Does The Program Help With?

The program covers four specific types of student loan:

  • Federal Direct Subsidized Stafford/Direct Loans
  • Federal Direct Unsubsidized Stafford/Direct Loans
  • Federal Direct PLUS Loans
  • Federal Direct Consolidations Loans

If your loan is a Federal Direct Perkins Loans type or Federal Family Education Loans (FFEL) type then this program does not apply to these loans. However, you may consolidate these loans using a Direct Consolidation Loan which can be applied for through the Department of Education and the new loan will be valid for debt forgiveness. Alternatively, in the case of Perkins loans, you may be eligible for a different cancellation program.

What Will I Have to Do To Qualify for Debt Forgiveness?

  • You will have to make 120 on-time repayments towards the loans being forgiven
  • Those repayments must be made under one of the qualifying plans for the program – including Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), Pay as You Earn (PAYE), and Standard Repayment. You should review these options based on your salary and make a decision based on the method that will save you the most money; typically this is likely to be an income-driven plan.
  • You will also have to work full-time at a qualifying organization throughout the period of the 10 years of repayments. This doesn’t mean you can’t change jobs but it does mean both employers must qualify.

How can I Apply for the Public Service Loan Forgiveness Program?

  • You need to fill in an Employment Certification Form and submit it both annually and every time you change jobs
  • Submit that form to the Fed Loan Servicing department
  • Then the information that you have supplied will be reviewed and if you qualify the Fed Loan Servicing department will let you know. It is possible that they may ask for further info during this process and ask to see wage slips, tax forms, etc.
  • If you qualify; the Fed Loan Servicing department will explain how many qualifying payments you have already made and how many more you will need to make to have your debt forgiven
  • Once you are eligible for debt forgiveness – you must fill in a PSLF application form. There’s no copy of this form available yet as the first eligible series of loans to be forgiven won’t be ready until 2017

How Much of My Loan Can Be Forgiven Under This Program?

There is no ceiling on the amount of debt which can be forgiven under the Public Service Loan Forgiveness Program – that means you may have all of your federal student loan debt forgiven under this program.

Teacher Loan Forgiveness Program

061026-N-5271J-014 Sasebo, Japan (Oct. 26, 2006) - Jennifer Tonder (right), a teacher's aide for a 3rd-4th grade multi-age class, discusses the various books available from the Reading Is Fundamental (RIF) grant given to Sasebo Elementary School with a student. The RIF donated 1,000 books to the school's library. Sasebo Elementary was the first overseas school to receive the RIF grant. U.S. Navy Photo by Mass Communication Specialist 3rd Class Jeff Johnstone (RELEASED)

It’s recognized that teachers are an essential part of communities and that the role they play in developing children’s lives is vital to society. However, it’s also pretty much understood that the pay for teachers is often inadequate and that can make it difficult for teachers to repay their student loan debt. To address this issue there is a Teacher Loan Forgiveness Program which can help forgive some of a teacher’s student debt.

Who Qualifies for This Program?

Only teachers that currently work at low-income schools may qualify for loan forgiveness through the Teacher Loan Forgiveness Program. There is a list of eligible schools which you can search at the Teacher Cancellation Low Income Directory to see if your school is on the list.

Which Loans Does The Program Help With?

The program covers two specific types of student loan:

  • Federal Direct Subsidized Stafford/Direct Loans
  • Federal Direct Unsubsidized Stafford/Direct Loans

What Will I Have to Do To Qualify for Debt Forgiveness?

  • You will have to be working for a low-income secondary school or elementary school which is on the list of qualifying schools for the program
  • You must have taken your student loans after 1st October, 1998
  • You must not be in default on your current loan obligations
  • You must have been working full-time as a teacher for five consecutive years
  • You must hold a state certification and a license to teach in the state that you are in

How can I Apply for the Teacher Loan Forgiveness Program?

If you meet the criteria for teacher loan forgiveness you can apply any time by completing the form for Teacher Loan Forgiveness. Once you have completed it – you send it to your loan servicing agency to process.

How Much of My Loan Can Be Forgiven Under This Program?

Teachers that meet the criteria for the program may be allowed up to $5,000 in loan forgiveness. Those who meet the criteria for the program AND teach math or science OR work in special education may be allowed up to $17,500 in loan forgiveness.

Teacher Loan Cancellation for Federal Perkins Loans

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Federal Perkins Loans holders who intend to pursue a career as a teacher may be in luck. It is possible to have 100% of the balance of your student loan forgiven.

Who Qualifies for This Program?

To qualify for this program you must be a full-time teacher working at a low-income public or non-profit school. You must also specialize in math, science or special education or teach in a special shortage area. Only elementary and secondary school teachers are eligible. It is also possible that you may qualify for the program if you teach at a private school with official non-profit status or if you work for an educational service agency.

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Which Loans Does The Program Help With?

  • Federal Perkins Loans

What Will I Have to Do To Qualify for Debt Forgiveness?

  • You must work full-time for a single complete academic year as a qualifying applicant

How can I Apply for the Teacher Loan Cancellation for Federal Perkins Loans Program?

  • Request the forms you need from the office which administers the Federal Perkins Loan program at the school where you took the loans
  • Provide all the documentation that is requested of you during the process

How Much of My Loan Can Be Forgiven Under This Program?

Teachers that are eligible for the program have their debt forgiven as follows:

  • After 1 year of service and up to the end of the second year – you may have 15% of the loan cancelled
  • After 3 years of service and up to the end of the fourth year – you may have 20% of the loan cancelled
  • During the 5th year of service – you may have 30% of the loan cancelled
  • After 5 years of service – you can apply to have 100% of your loan cancelled

Forgiveness with Income-Based Repayment Program

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This isn’t a forgiveness program in the same sense as the programs as above but you can get your loans forgiven if you use the Income-Based Repayment (IBR) Program.

IBR means that your loan repayments are capped at between 10% and 15% of your discretionary income. If you make repayments under the IBR program for the 20-25 year period of your loan; the outstanding balance at the end of this period will be forgiven.

You should know that there are tax implications to this forgiveness unlike with the programs above – loan balances that are forgiven at the end of the period of IBR are treated as income. That means you will have to pay income tax on this.

This program will really only suit those people with high-figure debts and low-incomes.

Who Qualifies for This Program?

This isn’t as clear cut as with other student loans debt forgiveness programs; you need to be eligible for IBR and your payments will need to be lower than they would be if you were using the Standard Repayment Plan. The good news is that you can calculate this figure by using the Repayment Estimator provided by Federal Student Aid.

Which Loans Does The Program Help With?

There are several types of loan that may be eligible for IBR payments:

  • Direct Loans
  • Direct PLUS Loans (but only those made to graduates or professionals those made to parents aren’t eligible for this program)
  • Direct Consolidation Loans
  • Federal Stafford Loans
  • FFEL PLUS Loans (but only those made to graduates or professionals those made to parents aren’t eligible for this program)
  • FFEL Consolidation Loans (but only those loans which were not taken out to repay PLUS loans made to parents)

What Will I Have to Do To Qualify for Debt Forgiveness?

  • Make 20-25 years (depending on your loan terms) of IBR payments
  • Notify the loan provider when your income changes

How can I Apply for the IBR Forgiveness Program?

  • Complete the online application form at StudentLoans.gov
  • Provide any documents that are requested as part of the application process

How Much of My Loan Can Be Forgiven Under This Program?

The whole balance of the loan remaining after 20-25 years’ worth of repayments is forgiven. However, don’t forget that this means paying income tax on the sum forgiven.

Forgiveness with Pay As You Earn Repayment Program

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Again, as with the IBR program this isn’t a traditional forgiveness program but there is the potential to have some of your debt forgiven. The Pay As You Earn (PAYE) Repayment Program ensures that the monthly loan repayments are capped based on 10% of your discretionary income.

Borrowers who can make 20 years of payments under the PAYE Repayment Program are eligible to have the outstanding balance of the loan forgiven at the end of that 20 years. However, just as with the IBR program – the amount forgiven will be treated as income and you will be taxed on it.

Who Qualifies for This Program?

To qualify for the PAYE Repayment Program you will need to show that you suffer some form of financial hardship and you must find that your repayments on the program are less than they would be if you were using a Standard Repayment Plan over 10 years.

Which Loans Does The Program Help With?

There are three loan types that are eligible for PAYE repayment programs:

  • Direct Stafford Loans
  • Direct Grad PLUS Loans
  • Direct Consolidation Loans (though this does not include Parent PLUS loans and it also excludes any loan that was made before the 1st of October, 2007)

What Will I Have to Do To Qualify for Debt Forgiveness?

  • Make payments for 20 years based on income and size of family
  • Have taken out your loan after the 1st of October, 2007 or in the case of a Direct Loan Disbursement have taken out your loan after the 1st of October, 2011

How can I Apply for the PAYE Forgiveness Program?

  • Complete the online application form at StudentLoans.gov
  • Provide any documents that are requested as part of the application process

How Much of My Loan Can Be Forgiven Under This Program?

After you’ve paid for 20 years; your whole outstanding balance may be forgiven. It’s important to bear in mind that this amount will be treated as income and will be taxed accordingly.

Last Thoughts on Student Debt Forgiveness

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If you don’t qualify for these programs then there are specific state programs for professionals that might be able to help. For example:

  • Special teacher forgiveness programs are available in many states
  • Special doctor forgiveness programs are available in many states
  • Special lawyer forgiveness programs are available in some states

 

If you still don’t qualify for debt forgiveness and you are struggling with student loan debt you might also consider deferring your loans, putting the loans into forbearance or even using a debt consolidation loan to reduce the monthly payments on the loan. It’s always a good idea to talk to the lender when you find yourself struggling with debt rather than falling into arrears – there are often simple solution to dealing with student loan debt.