student loan forgiveness

The Ultimate Guide To Student Loan Forgiveness

It’s no surprise that student loan debt is becoming more and more of a burden on both students and the economy. For many students, earning a degree comes with much stress once they graduate because they are left with debt that follows them around for many years. So, the question is, is going to college worth the debt? And if you’re going to earn a degree, are there certain types of student loan better than others? The answers to these questions are yes and yes. Earning a degree can be well worth the money invested, especially when you take advantage of certain loans. It’s also worth knowing that your student loans can, many times, be forgiven if you meet certain criteria. Let’s take a look at an in-depth guide covering everything you need to know about student loan forgiveness. As you read through this guide, it’s first important to prepare yourself by understanding that loan forgiveness is very complex and complicated. We’ve done our best, however, to break down the information in an easy-to-understand format. Let’s get started.

Is It Really Possible To Get Student Loans Forgiven?

Yes, students who take out student loans can have their debt forgiven, but most times, only a portion of the debt will go away. Also important to understand is that the forgiveness process is quite lengthy and applies only to federal loans. If you have taken out private student loans to pay for your degree, these will not qualify for forgiveness; this is why it is so important to obtain as much funding as possible through federal loans for your schooling.

How Does The Loan Forgiveness Process Work?

Here is where things get complicated. The student loan forgiveness process varies based on the type of repayment plan you are on as well as the type of employment you acquire once you graduate. Thought you were going to get your loans forgiven without having to sign up for a repayment plan? Think again. Almost everyone who has their loans forgiven will have to make monthly repayments for many years. Let’s look at the different types of repayment plans and the forgiveness terms that go along with them.

5 Student Loan Forgiveness Programs That Are Legit (based on the type of repayment plan you sign up for)

student loan guide

1. Income-Based Repayment

Commonly referred to as an IBR plan, this repayment program requires you to pay 15 percent of your discretionary income toward the repayment of your student loans. For example, if your discretionary income is $600 a week, your monthly loan repayment will be $390 a month. Seeking loan forgiveness on the IBR plan means you will have to make 25 years worth of payments, so as you can see, depending on the amount of debt you have, you very well may pay off your student loans before the forgiveness benefit kicks in. For example, if your student loan debt is $40,000 and you pay $390 a month, it will take you only a bit more than 8.5 years to pay off your debt, meaning you would never actually qualify for loan forgiveness. Here is an example of when an IBR plan would qualify for forgiveness. Let’s say your discretionary income is only $200 a week and you owe $65,000 on your student loans. Your monthly loan repayment amount would be $130. After making payments for 25 years, you will have only paid off $39,000 of your debt, leaving $26,000 to qualify for loan forgiveness. Do keep in mind, however, that only certain federal loans qualify for forgiveness under this plan:

  • Direct
  • Direct PLUS
  • Direct Consolidation
  • Federal Stafford
  • FFEL PLUS
  • FFEL Consolidation

2. Pay As You Earn

Often referred to as the PAYE plan, this repayment option is a bit more lenient and makes more sense for those who are seeking loan forgiveness. Under the PAYE plan, you are required to pay 10 percent of your discretionary income toward your monthly repayment and you only have to make 20 years worth of payments until you qualify for loan forgiveness. Here is an example of a qualifying situation. Let’s say you owe $48,000 on your loans and your discretionary income is $300 a week. Your monthly repayment amount will be $195. After making this monthly payment for 20 years, you will have paid back $46,800. As you can see, this situation does qualify for loan forgiveness, but only $1,200 actually ends up being forgiven. Once again, only certain types of federal loans qualify for this forgiveness plan:

  • Direct Stafford
  • Direct Grad PLUS
  • Direct Consolidation

3. Student Loan Forgiveness for Public Service

This is a great loan forgiveness option to take advantage of because it requires only 15 percent of your discretionary income to be paid toward your loans and only 10 years worth of payments. However, during the 10 years that you are making repayments, you must be employed in a qualifying public service job. There has actually been a lot of controversy surrounding this forgiveness program lately. The important thing to be aware of is the exact type of employment you must acquire to qualify for Public Service Loan Forgiveness. Common types of employment that qualify for this forgiveness plan are as follows:

  • Teach for America
  • Americorps or Peace Corps
  • Federal, state, and local government positions
  • Public school jobs (both administrative and teaching roles)
  • 501(c)(3) not-for-profit organizations
  • Law enforcement positions
  • Military and public health services jobs
  • Public service law

If you are wanting to apply for loan forgiveness under this repayment plan, you must be employed on a full-time basis through a qualifying employee. If you choose to work a part-time job, this is okay, but you will need to work at least two of them and be working at least 30 hours a week for the entirety of the 10 years in which you are going through the forgiveness process. Also, when you apply for forgiveness, you must already be employed at a qualifying organization. More so, you MUST make at least 120 eligible repayments. It is highly recommended that you track all of your repayments as well as your employment history. In fact, your employment history needs to be tracked via multiple methods, including W-2s and paystubs. If you change jobs throughout the 10 years in which you are making repayments, you will need to let the loan forgiveness program aware of the job change. And even after you have made 120 repayments and worked 10 years at a qualifying job, you will then have to fill out more paperwork to have your loans forgiven, including the Employment Certification for Public Service Loan Forgiveness form. Loans that qualify for this forgiveness program are:

  • Direct Subsidized Stafford/Direct
  • Direct Unsubsidized Stafford/Direct
  • Direct PLUS
  • Direct Consolidation

4. Total and Permanent Disability Discharge

There is great news for those of you who graduate with student debt and end up qualifying for total or permanent disability. Although it is unfortunate that you have gone through a circumstance that warrants student loan forgiveness for disability, upon proof of being approved for disability, this will forgive your student loan debt. Eligible loans for forgiveness under this plan include:

  • Direct
  • FFEL
  • Federal Perkins

5. Perkins Loan Forgiveness

Did you use a Perkins loan to fund a portion or all of your schooling? If so, a forgiveness program is available. In fact, upon proof of employment in a qualifying career, your loan can be wiped away completely. Please note that the specifics vary, but in most cases, employment in the following careers will qualify you for loan cancellation:

  • Psychologist
  • Lawyer
  • Pharmacist
  • Accountant
  • Teacher
  • Dentist
  • Doctor
  • Nurse
  • Physician Assistant
  • Military
  • Law enforcement
  • Professor
  • Veterinarian

There are many routes for taking advantage of Perkins Loans Forgiveness. For example, someone seeking student loan forgiveness for teachers under this program will qualify for a certain portion of their debt relieved for each academic year they teach on a full-time basis. What is the minimum number of hours a day that a teacher must teach? There is none.  The school through which the teacher is employed is responsible for determining how many hours the teacher teaches. Even if a teacher switches schools, which is quite common, as long as the teaching semesters remain consecutive, this will still qualify the teacher for loan forgiveness. As you can see, the longer a teacher teaches, the more debt he or she can have forgiven.

A Close Look at Teacher Loan Forgiveness Program

There are many incentives for becoming a teacher and student loan forgiveness for teachers is one of them. Going to college to enter into this career field can be accomplished in as little as four years. To become a professor, you will likely need to get an advanced degree, such as a master’s or doctorate. However, once you graduate, the federal government has put into place an excellent way to help you with your loan debt. The Teacher Loan Forgiveness Program gives teachers who work in a school serving a low-income family community for at least five years the ability to have up to $17,500 of their debt relieved. To qualify for this program, you will need to have either Federal Stafford Loans or Federal Direct Loans, or both.

A Close Look at Nurse Loan Forgiveness Program

Student loan forgiveness for nurses has a positive outlook. Take for example a student who used a Federal Perkins Loan to fund their way through nursing school. If this student graduates and works as a full-time nurse for a period of five years, 100 percent of the student debt may qualify for forgiveness. Much like the teacher forgiveness program that takes place over the period of several years, nurse loan forgiveness operates in the same manner. This means even if a nurse doesn’t work full-time for the whole five years, a portion of the debt may be forgiven for the period of time in which full-time employment was maintained.

Looking at Student Loan Forgiveness From a Tax Standpoint

If you qualify for student loan forgiveness, there is much to celebrate, but make sure you don’t celebrate without taking into account the tax downside of loan forgiveness. Sure, having your debt forgiven is great, but you are still going to have to pay taxes on the amount that was forgiven. Fortunately, though, you won’t have to pay state taxes on this amount. Instead, you will just owe federal government tax. Still yet, if you have a large portion of your debt forgiven — say $50,000 — your tax bill is going to be quite hefty.

What About Private Student Loans? Is There Any Way to Get Them Forgiven?

It’s great that you were able to fund your schooling through a loan, even if it was a private lender, but in regards to having your debt forgiven, you are generally out of luck. It is very rare that a private loan lender will forgive even a portion of the debt. However, there are many lenders who make available various repayment plans, allowing you to take advantage of an option that best suits your financial status. Some even allow you to defer payments or pay the interest only until you are in better financial shape to make the original agreed-upon repayments. If you are finding it difficult to pay back your borrowed funds on a loan made by a private lender, it is highly encouraged that you speak with the lender as soon as possible to set up an alternative repayment plan. You can also look into student loan consolidation if you have more than one loan through a private lender; this can reduce your monthly repayment amount as well as possibly reduce the overall period of time that you have to make payments.

Take Advantage of Your Benefits Package

If you are seeking employment or looking to switch employers, it is highly advised that you look for an employer who includes student loan repayment help in your benefits package. Although the number of employers who are offering this type of benefit is quite low, there are several out there who can be of immense help. According to Forbes, the hottest employee benefit of 2017 was student loan repayment. Currently, roughly four percent of employers offer this type of benefit, with Fidelity, Aetna, and Natixis being three of the more well-known companies helping loan borrowers with their debt.

Fidelity offers it management-level employees as well as those employed below this level the ability to receive up to $2,000 a year to pay toward their student loan debt. The maximum benefit amount is $10,000. For someone who owes the average amount of loan debt, which is $37,172, a $10,000 benefit would be a 26.9 percent total savings. That’s quite a bit of help.

The Takeaway

Earning a degree very well may be one of the best choices you ever make. And for many careers, earning the appropriate credentials is a necessity. Still yet, graduating with debt can be extremely stressful. The emotional toll that loan debt is playing on students is enormous, making it all the more important to take advantage of forgiveness programs whenever possible. To learn more about student loan forgiveness, you will want to speak with your loan service provider to ensure you are meeting the qualifications and criteria that each program mandates.