Comprehensive Guide to Student Loan Forgiveness Programs
Saving an emergency fund or buying a home can be tough when student loan payments are part of your budget. Student loan debt is a financial burden for millions of Americans. And, this number continues to climb.
It would be nice to have a magic wand to wipe away your student debt but unfortunately, that's not realistic. There is, however, another way to make some of your loan burden disappear.
Student loan forgiveness can be a way out of education debt. Keep reading to learn how it works and what your forgiveness options are.
What Is Student Loan Forgiveness?
Student loan forgiveness happens when your lender forgives part of your student debt. It's a little like credit card debt settlement. The lender agrees that you don't have to repay what you borrowed in full.
Student loan forgiveness programs usually have certain criteria to qualify. For example, you might have to agree to work in a certain career path or geographic region.
In other words, student loan forgiveness isn't automatic. And student loan forgiveness programs aren't all the same.
Understanding how these programs compare and who's eligible for them is important. To make it easier, we've broken down how eight types of loan forgiveness work.
1. Public Service Loan Forgiveness (PSLF)
Public Service Loan Forgiveness (PSLF) is for federal borrowers who work in public service full-time. That includes people who work for:
- Federal, state, local or tribal governments
- Non-profit, tax-exempt organizations
- Other types of nonprofits that are not tax-exempt
You can also qualify if you're a full-time AmeriCorps or Peace Corps volunteer.
The program doesn't cover employment in:
- Labor unions
- Partisan political organizations
- For-profit organizations
- Nonprofits that are not tax-exempt and don't provide a qualifying public service
How it works:
To qualify for public service loan forgiveness, you have to make 120 full, on-time payments. Payments made when you're in a grace period, in school, on deferment or in forbearance don't count.
Payments must be through a qualifying plan, such as:
- Income-Based Repayment (IBR)
- Pay As You Earn (PAYE)
- Revised Pay As You Earn (REPAYE)
- Income-Contingent Repayment (ICR)
- Standard Repayment
After making 120 payments, you can apply for loan forgiveness. Approval means your loans are forgiven.
Public Service Loan Forgiveness is available for these loan types:
- Direct Subsidized and Unsubsidized Loans
- Direct PLUS Loans
- Direct Consolidation Loans (including consolidation of Federal Perkins Loans and Family Education Loans)
There's no cap on the amount of federal loan debt eligible for forgiveness. That's a plus if you're carrying a larger student debt load.
Choosing an income-driven plan versus standard repayment can lower your payments. That minimizes the amount you pay before you're eligible for forgiveness. There's a potential downside, though.
If you don't qualify for Public Service Loan Forgiveness, income-driven repayment can backfire. A longer repayment term can make your loans more expensive over time, even if the monthly payment is less.
If you plan to apply for loan forgiveness, there's one thing you have to do. Remember to submit the Employment Certification for Public Service Loan Forgiveness form annually. This form is required each year you work in public service to verify your employment.
2. Income-Driven Repayment Plan Forgiveness
Student loan forgiveness is also a possibility with an income-driven repayment plan (we explain in greater detail below).
Income-Based Repayment (IBR) sets your payments at 10 to 15 percent of your monthly discretionary income. You make payments for 20 or 25 years, depending when you took out your loans. After that, any remaining loan balance is forgiven.
The Pay As You Earn Program limits your payments to 10 percent of discretionary income. It has a 20-year repayment term. Revised Pay As You Earn is the same, with the repayment term extended to 25 years for graduate school loans.
Income-Contingent Repayment means you pay the lesser of 20 percent of your discretionary income, or what you'd pay on a fixed 12-year plan. The advantage of ICR is that it extends to borrowers who have consolidated Parent PLUS Loans. ICR plans offer forgiveness after 25 years.
Income-driven repayment forgiveness is available for a variety of loan types, including:
- Direct Subsidized and Unsubsidized Loans
- Direct Grad PLUS loans
- Subsidized and Unsubsidized Family Federal Education (FFEL) Stafford Loans
- FFEL PLUS Loans made to grad students
- Consolidated Federal Perkins Loans
- Qualifying Direct Consolidation Loans
The most important thing to know is that not everyone qualifies income-driven repayment. To be eligible, the payment you make under the plan must be less than what you'd pay under a Standard Repayment plan. (This plan assumes a 10-year repayment period).
3. Federal Perkins Loan Cancellation
Cancellation is another type of loan forgiveness available to Federal Perkins Loan borrowers. This program offers up to 100 percent cancellation and forgiveness of loans for:
- Speech-language pathologists
- Law enforcement officers
- Public defense attorneys
- Service volunteers
- Selected military service members
Perkins Loan cancellation usually requires you to work in a qualifying profession full-time for at least one year. Some career paths might also have extra requirements. For example, if you're a teacher, you might have to commit to working in an underserved school for a set time frame.
The Department of Education doesn't handle Perkins Loan cancellation applications. You can apply for cancellation with the school that made your loan. Or, you can apply with the school's Perkins Loan servicer.
4. More Teacher Student Loan Forgiveness Programs
Public Service Loan Forgiveness and Perkins Loan cancellation aren't your only options. There are some other forgiveness programs for teachers.
The Federal Teacher Loan Forgiveness Program covers borrowers who teach full-time. You must work five consecutive academic years in a low-income school or education service agency.
This program applies to borrowers with:
- Direct Subsidized and Unsubsidized Loans
- Subsidized and Unsubsidized Federal Stafford Loans
If you only have PLUS loans, you won't be eligible. Unlike other forgiveness programs, this one has a cap on how much is forgiven.
The program limits you to $5,000 or $17,500, depending on what you teach. Math, science and special education teachers qualify for the higher forgiveness limit.
If you have a Direct Consolidation Loan or a Federal Consolidation Loan, you may qualify for partial forgiveness. This is available for any part of either loan that repaid a Direct Subsidized or Unsubsidized Loan, or a Subsidized or Unsubsidized Federal Stafford Loan.
You can apply for Teacher Loan Forgiveness as long as your loans aren't in default. Fill out the Teacher Loan Forgiveness Application and give it to your loan servicer.
State loan repayment programs for teachers
Teacher Loan Forgiveness is available at the federal level. You may also find state programs that offer loan repayment help for teachers.
These programs allow you to work off some of your loan balance when you enter into a work agreement. Like the federal program, you may have to commit to working for a set number of years or in a low-income area.
Check the American Federation of Teachers' searchable database. This tool can help you find loan repayment programs in your state.
5. Nurse Student Loan Forgiveness Programs
Being another nurse is another way to secure student loan forgiveness.
The NURSE Corps Loan Repayment Program offers repayment aid to:
- Registered nurses
- Advanced practice registered nurses
- Nurse faculty
The program pays up to 85 percent of your nursing education debt. In exchange, you commit to a three-year work agreement. You have to work in a critical shortage area that serves a high-needs population. You also have to complete your education at an accredited nursing school.
You can apply online for nursing loan forgiveness. Applications are only accepted during certain times of the year. Before you apply, be sure to read up on the program guidelines to make sure you're eligible.
Nursing loan repayment assistance programs
There are also state-sponsored loan repayment assistance programs for nurses. Help is usually contingent on working in a certain area or for a certain number of years.
6. Loan Repayment for Other Health Care Professionals
If you earned a degree in a healthcare field other than nursing, you're not shut out of loan forgiveness. There are other options for reducing your loan debt.
The National Health Service Corps (NHSC), for example, offers loan repayment to licensed health care providers.
To qualify, you must be a:
- Primary care physician
- Mental or behavioral health clinician
It's possible to get up to $50,000 in loan forgiveness through the program. The trade-off is that you have to commit to working for two years at an eligible site.
The Students to Service Loan Repayment Program is another program offering loan help. This program is designed for medical and dental students in their final year of school.
The program offers up to $120,000 in loan repayment. You have to commit to working at least three years at an NHSC-approved site after graduation. That can go a long way towards relieving your debt load.
Doctors who practice in Native American and Alaska Native communities may qualify for loan repayment help through the Indian Health Service. This program offers up to $40,000 in loan forgiveness for a two-year service commitment.
The National Institutes of Health offers a loan repayment program for health care professionals pursuing a career in research. You can get up to $35,000 in loan repayment for carrying out research at qualifying nonprofit for two years.
Loan forgiveness is available to military doctors through the Active Duty Health Professions Loan Repayment Program and the Navy Financial Assistance Program. These programs offer up to $120,000 and $275,000 in assistance, respectively.
7. Loan Forgiveness Programs for Attorneys
A law degree can come with a huge price tag but forgiveness programs can trim it down.
There are federal and state forgiveness programs available. Law schools, law firms, and bar associations can also offer their own forgiveness or loan repayment assistance programs.
The U.S. Department of Justice offers up to $60,000 in loan repayment if you work for the DOJ for at least three years. You'll need to have at least $10,000 in federal loans to qualify.
If you're going into public defense, the John R. Justice program might be an option. This program offers up to $10,000 a year in loan repayment, with a max of $60,000 total.
Many law schools across the country have individual loan repayment assistance programs. The amount of help available varies from school to school. You can find details for specific schools that offer loan repayment programs here.
There are 26 state-sponsored loan repayment assistance programs for attorneys. The size and scope of the programs vary but many of them expect you to work in a public interest capacity.
Check your state bar association for loan repayment assistance in your state. Your state's higher education commission or commerce department can also help.
8. Other Student Loan Repayment Assistance Options
If you're not a teacher, nurse, doctor or attorney, is loan forgiveness out of the question? Not always.
One place you may be able to find help is through your employer. Some of the companies that offer loan repayment help for grads include:
- Fidelity Investments
Some of these companies also offer tuition reimbursement. Many are in the financial services sector but there are some tech companies in the mix. If you're not sure whether your company offers this benefit, it's worth a call to HR to find out.
Serving in the military can also open the door to loan forgiveness. Members of the Air Force, Army, National Guard and Navy may be eligible for help with their loans.
The Marines, Coast Guard, and Air Force Reserves don't offer loan repayment programs.
Tax Implications of Student Loan Forgiveness
There's one very important thing to know about student loan forgiveness. It's not free money.
Loan forgiveness doesn't end your financial responsibility for your education. Depending on the program, any amount that's forgiven may be taxable income.
Public Service Loan Forgiveness is exempt from this rule. Income-driven repayment plans aren't. Loan repayment help received through a military program is also taxable.
What does that mean for you? It could mean a larger tax bill if you have a lot of loan debt forgiven.
Before you commit to loan forgiveness, be clear on how that could affect your tax situation later on. You don't want to be in debt to Uncle Sam.
Alternatives to Loan Forgiveness
Not eligible for loan forgiveness? You've still got options for dealing with your debt. Here's a look at how they compare.
In special cases, you might be able to get your loans discharged.
Discharge wipes the debt slate clean the same as forgiveness. You might be eligible for a discharge of federal student loans if:
- You file for bankruptcy
- Your school closes
- You become totally and permanently disabled
- You're a veteran with a service-connected disability
- Your school provided false certification to approve you for loans
- Your school didn't return any unused loan money to the Department of Education
- You believe your school defrauded you in some way
Loan Discharge Pros & Cons
If discharge is a no-go, you might try income-driven repayment to manage your loans.
Income-driven repayment doesn't guarantee forgiveness. But, it can make your loans more manageable in the meantime by lowering your monthly payment.
If you're considering income-driven repayment, remember to compare the different plan options. You may qualify for one plan based on your income, but not another.
Remember to calculate the total interest cost of choosing an income-driven plan. Consider how long the loan repayment term is. Ask yourself if you're comfortable paying on your loans for 15, 20 or 25 years if you're not able to bump your payments up later on.
Income-Based Repayment Pros & Cons
Deferment and Forbearance
Deferment or forbearance can be a temporary break from making payments on your loans.
With federal loans, you can defer your payments for up to three years. General forbearances are available for up to 12 months at a time.
With either one, you're not responsible for paying on your loans. Forbearances are usually granted because of an economic hardship. The difference between the two lies in how interest accrues.
With deferments, the federal government pays the interest on your subsidized loans. You're still responsible for paying interest on any unsubsidized loans. With a forbearance, the interest keeps accruing the whole time on all your loans.
Deferment and Forbearance Pros & Cons
Loan Consolidation and Refinancing
Consolidating all your federal loans can streamline your monthly payments. You can also refinance private loans into a single payment at a lower interest rate.
Loan Consolidation and Refinancing Pros & Cons
Personal Loan Consolidation
You could use a personal loan to consolidate your student debt. This is usually a better choice if you don't have a lot of loans to consolidate and you've got a good to excellent credit score.
Personal loan consolidation works the same as federal loan consolidation or refinancing. All your loans are combined into a single loan, at either a fixed or variable rate. You have one monthly payment going forward.
Personal Loan Consolidation Pros & Cons
Credit Card Balance Transfer
If you have a smaller amount of loan debt, a 0% credit card balance transfer is worth considering. The most important thing is to compare transfer offers carefully.
You need to understand what the promotional rate is and how long it lasts. You also need to check into what the regular APR is once the promotional period expires, and how much you'll pay for balance transfer fees.
Balance Transfer Credit Card Pros & Cons
The Bottom Line
Student loan forgiveness can offer financial relief to eligible borrowers. It's worth exploring if you're in a public service job or a specialized profession.
The most important thing to remember about loan forgiveness is there are lots of choices. The more options you know about, the easier it becomes to get a grip on your student debt.