Paying back student loans can be scary and intimidating, especially if you’ve racked up a large amount of debt. But if you work as a teacher, doctor, or treat large animals as a veterinarian in a rural area of Minnesota, you could be eligible for a loan forgiveness or discharge program.
Loan forgiveness and discharge programs can pay for all or part of your student debt. And with Americans holding more than $1 trillion in student debt, you might want to consider taking advantage of one of these programs. Here’s a guide to help explain how these programs works.
What’s the difference between forgiveness and discharge programs?
Loan forgiveness and discharge programs are instituted by the U.S. government to eliminate all or part of a student’s loans if he or she qualifies. Loan forgiveness happens when you’re rewarded for something you do, such as giving to the community in a specific way like teaching or providing medical services. Loan discharges usually occur when something bad happens to you, like death or disability.
What types of loan forgiveness programs are out there?
Forgiveness programs can be divided into these broad categories with a few examples listed, outlining each below:
If you spend a substantial amount of time serving your local community, you might be eligible for a number of forgiveness programs through organizations like the Peace Corps. and AmeriCorps.
- If you complete a term of service with the AmeriCorps, a federal program that’s meant to engage adults in intensive community service work, you could receive an award for more than $5,000.
Talk to a recruiter about your options or visit Military.com to find out more. Two examples of military forgiveness programs:
- If you’re an active duty health professional in an identified skills shortage area you could be eligible for up to $40,000 of loans forgiven in the Active Duty Health Professionals Loan Repayment Program.
- If you have no prior military experience and enlist in the Navy for a minimum of three years, you could be eligible to receive 33 ⅓ percent of the remaining principal balance or $1,500 per year with a maximum of $65,000 in the Navy’s Loan Repayment Program.
Not all careers are eligible for loan forgiveness, but if you’re in the teaching, health, and public defender fields you might qualify. A lot of the information may be buried, so try searching the Internet or talking to your employer. You can also find more information at FinAid.org. Some examples of profession-based forgiveness programs:
- If you’re a qualified veterinarian serving in high-priority veterinary shortage situations you could qualify for the USDA Veterinary Medicine Loan Repayment Program and receive up to $25,000 per year for a three-year commitment.
- If you teach full time for five consecutive years in a designated elementary or secondary school serving low-income families you might be eligible for a teacher loan forgiveness program and receive up to $5,000 a year or $17,500.
- If you’re a licensed primary care medical, dental, or mental and behavioral health provider working in a high-needs site you could receive up to $60,000 for an initial two-year commitment.
If you are a legal resident of a particular state, work in that state in a specific job, have a license for one of the jobs in that state or went to school in that state, you could be eligible for a number of state-specific programs. Again, information might be buried or hard to find, so scour the web and dig for details. A few examples:
- If you’re a licensed nurse practicing and residing in Illinois at an Illinois veterans’ home, you could receive up to $5,000.
- If you’re a veterinarian who practices mostly large/food animal medicine in Kentucky and work at a practice that devotes at least 50 percent of its time to large food animals you could be eligible for up to $6,000 per year for up to three years.
- If you teach in North Dakota at a grade level and/or in a content area identified as having teacher shortages you could be eligible to receive up to $1,000 per year.
Should you plan a career around qualifying for a loan forgiveness program?
Absolutely not. Regulations change, you may not meet all the requirements, and you should major in something that you are interested in.
What types of loan discharge programs are out there?
Loan discharge programs include:
Closed schools/school error
If your school closed while you were attending it or within 90 days of leaving it, then you could be eligible. Also, if you withdrew from school and were not refunded the correct amount you could be eligible for loan discharge. But you’re only eligible if you received your loans on or after January 1, 1986.
If you’re the spouse of eligible public servants or other eligible victims who died or became permanently disabled due to physical injuries suffered in the 9/11 attacks, then you are eligible to earn 100 percent of the loan you owed on September 11, 2001.
Borrowers who face financial hardship could be eligible based on these options:
- Bankruptcy — You must prove that repaying your loans would be an undue hardship. Generally, you’re required to show there’s no likelihood of any future ability to repay. Learn more.
- Income-based repayment – To qualify you must have a partial financial hardship, which means that payments to your eligible loans exceed 15 percent of your discretionary income. After 25 years (10 if you work in public service), any student loan debt left over is forgiven. Learn more.
- Income-contingent repayment — Similar to income-based repayment, except payments are capped at 20 percent of discretionary income. Learn more.
- Pay-as-you-earn forgiveness — For newer borrowers. To qualify you must be a new Direct Loan borrower as of October 1, 2007, with a disbursement made after October 1, 2011. Any Direct Consolidation loan made on or after Oct. 1, 2011 that does not include a Parent PLUS loan or a loan made prior to October 1, 2007 is eligible. You must make 20 years (10 if you work in public service) of payments under this repayment plan and have a partial financial hardship, which means payments to your eligible loans exceed 10 percent of your discretionary income. Learn more.
If someone fraudulently obtained a loan in your name you’re eligible to have 100 percent of your loan discharged. This includes identity theft and false certification.
If you suffer from physical or mental impairments or have died you’re eligible to have your loan discharged.
What’s the difference between the loan repayment programs?
Income-based repayment sets your payment amounts based on your income and family size and caps your payments at 15 percent of your discretionary income. Income-contingent repayment is similar to income-based repayment, but caps payments at 20 percent of your discretionary income. Plus, it’s only available for Direct loan borrowers.
For both programs, after 25 years (10 if you work in public service) and 300 eligible payments, any balance left is forgiven — but would be taxable. Pay-as-you-earn repayment is similar to income-based repayment and allows you to make payments of no more than 10 percent of your discretionary income.
After 20 years (again, 10 if you work in public service), any remaining balance is forgiven and taxable. Remember, you have to be deemed eligible for each of these programs to experience the benefits.