Student loans debts have skyrocketed in the past few years amounting to trillions of dollars. The recent Federal Bank reserve report shows that around 44.7 million Americans currently have student loan debts.
That comes to around one in every five Americans who must carry the burden of the student loan.
Naturally, any relief from this debt burden would be welcome, hence the popularity of student loan forgiveness programs. So here are some answers to questions that will give you more insights into the student loan forgiveness programs
What is student loan forgiveness?
Student loan forgiveness is where any student loans taken from the Federal Government can be discharged or forgiven altogether. But before you get our hopes up too high please note that the eligibility criteria are very stringent and only a very few can get their loans forgiven.
Who qualifies for student loan forgiveness?
The student loan forgiveness plan is applicable only for Direct Federal Student Loans. Private loans you cannot get loan forgiveness.
Now let’s try to find out who is eligible.
The eligibility is for people who are working in public service or those who participate in an income-contingent payment plan for the long term. There are other criteria as well which will be covered under program details.
Under what conditions are student loans discharged?
Although very rare there are circumstances that are deemed beyond the control of the borrower which may hinder the repayment of the loan. In those cases, there is a possibility of the loan being discharged.
Here are a few situations where a student loan may be discharged:
- A borrower
has been certified as permanently disabled
had closed during the duration of the study
the school has falsified loan qualifications
school failed to refund required loans to the lender
else stole the identity of the borrower and availed the loan
- In case of death of the borrower
Please note that the “circumstances beyond the control of the borrower” does not include any of the following:
- An economic downturn or personal crisis
- Borrower being unable to find a job after graduation
- The borrower must drop out before completing the program
How to get student loan forgiveness?
There are primarily 2 ways to obtain Student loan forgiveness:
- Apply for a PSLF (Public service loans forgiveness) program – To be eligible you need to be working in a public service job in the government or in some cases a non-profit organization would be acceptable as well.
If you are a part of certain types of volunteer work, military service or medical practice you may be eligible for this program too.
To be eligible for the PSLF:
- You should have made at least 120 qualifying payments. This means that you have paid the amount 120 times prior to the application. You have paid on-time.
- These payments also have to be paid while you have been employed with a government agency (Federal, State or local level) and in some cases non-profits who have tax-exempt status (By IRS under Section 501(c ) (3).
- Some people who come under this category would be AmeriCorp Volunteers, Peace Corp volunteers, Army National Guard, etc.
- If you are a full-time teacher in the elementary or secondary school in the low-income community, you may be eligible.
- Also, if you are a doctor or a nurse working in underserved areas, you may also be eligible for PSLF programs.
- Shift to longer-term, income-driven plans
Income-driven payment plans are the next option. What these programs allow is to extend the payment period beyond the standard 10-year period for a longer time.
Another advantage is the possibility that monthly payments may reduce in the amount as it is a longer-term. The programs are usually income-based so that the amounts are reasonable every month.
If qualifying payments are made for 20-25 years there is also a chance for earning forgiveness eligibility, where the rest of the amount may be forgiven.
What is attractive in income-driven plans is that the monthly payments become manageable and the chances of having the amounts forgiven over time exist. There are many programs that are available such as Income-based Repayment (IBR), Pay as you earn (PAYE), etc.
Are student loans forgiven after 20 years?
No, not automatically. It is a part of the income-driven repayment plans such as PAYE and IBR where after paying consistently and on time for 20-25 years the remaining amount is waived off or forgiven.
You would still have to apply for this waiver and, in most cases, pay income tax on the amount that was forgiven.
Teacher’s loan forgiveness program
If you are a teacher in a secondary or elementary there is a chance of getting $5000 to $17,500 after 5 years of full time teaching in an eligible school. But this is dependent on factors such as the subject you teach, school eligibility, etc.
Also, this is not full forgiveness only partial amount based on what you qualify for. The remaining amount will still need to be paid off.
Are student loan forgiveness programs legitimate?
No, not all of them are. The ones that are legitimate are the ones discussed here. There are a lot of scams promising you quick loan forgiveness and instant relief from your debt burden.
Most people fall for these as they seem legitimate enough and they would have come across their advertising on social media or on search engines. The only legitimate ones are the Federal PSLF programs or the income-based repayments programs mentioned above.
These do not instantly erase the debt. They take time and not everyone qualifies for them. A good way to differentiate the scams from the real programs is if any of the following occurs:
- If you must pay amounts upfront or are charged a ‘fee’
- There is an aggressive marketing effort
- Promises of immediate loan forgiveness
- Sensitive Personal Information such as SSNs and Student Ids are requested
- You are asked to sign up for it immediately
These situations listed above should alert you to a possible scam. What you can do are the following:
for time and get full details of the program before you commit to it
if you can do it yourself as most of the programs can be enrolled in by
the credentials of the agency and the person interacting with you
- Do your own research and if needed speak to counselors who are certified by National Foundation of Credit Counseling.
What’s the difference between discharge, cancellation, and forgiveness for student loans?
In most cases and in general, these terms are used interchangeably although there is a slight difference.
The terms cancelation and forgiveness usually mean the same thing. This is when you do not have to pay the debt amounts anymore. In case of other circumstances such as a permanent disability or school closure, death of the borrower, etc. the term discharged is used.
What happens if you never pay your student loans?
If you do not pay your federal student loan payments in time you can get into trouble. You are given up to 270 days to make the payment. If the amount is unpaid after that it is termed as a defaulted debt.
Once it becomes a defaulted debt, the government will be able to take 15% of your wages or stop disability pensions, tax refunds, etc. In some cases, the government is also known to sue if there are assets that can be used to pay off the loan.
Are there any drawbacks to the student loan forgiveness programs?
Yes, there are a few especially if you are looking at extending the program with income-based repayment programs. The interest on these loans will get accrued and you will end up paying extra for a longer period. Also, since these are based on your income, as your income goes up so does your payments.
Another point to consider is that for jobs that qualify for PSLF are usually lower and lack the income potential of a private-sector job. It may be better to earn higher pay. Then you can pay off the loans rather than extending the loan for longer and staying at a low paying job.
List of student loan forgiveness programs
Below is a list of types of student loan forgiveness programs. This is by no means comprehensive but includes the major types:
Service Loan Forgiveness (PSLF)
with Revised Pay As You Earn (REPAYE)
with Income-Based Repayment (IBR)
with Pay As You Earn (PAYE)
with Income-Contingent Repayment (ICR)
loan forgiveness for teachers
loan forgiveness for nurses
Perkins loan cancellation
repayment assistance for doctors and other health care professionals
repayment assistance for lawyers
student loan forgiveness and assistance
loan discharge for special circumstances
- Below are some of the student loan forgiveness programs
For more details please visit: Student Aid website
Application for student loan forgiveness
If you are applying for a PSLF program you cannot apply until you have made 120 qualifying payments. You need to also ensure that you are in a Direct Loan Program as only such loans would qualify. You can go to download the form to get started.
How to enroll for Income-Driven Repayment (IDR) plan?
As with the PSLF the IDR plans only apply to federal student loans. The type of student loans will determine the IDR plans you are eligible for. You can go to the website and request an IDR plan.
Instead of getting in debt, you may be able to pay for college other ways so you can check out our how to pay for college article.
Hopefully, this helped you with learning more about student loan forgiveness. You should be able to look into loan forgiveness with the links and resources we provided in the article. If you are eligible, please make sure you apply for loan forgiveness.