Student loans are a widespread way to pay for a college education. Most often, people obtain these loans with the intent to repay the loans over time once they are out of school and working in their selected field. Yet, there are some instances where there may be an opportunity to have the loan forgiven, meaning you do not have to repay the debt.
What Is Student Loan Forgiveness?
Student loan forgiveness occurs when the U.S. Department of Education or the student loan holder discharges the loan, meaning the borrower no longer has to repay the debt. Some people qualify for these loans due to the type of work they are doing. Most student loans today still need to be repaid as agreed to in the terms of that loan.
Do not confuse student loan cancellation with student loan forgiveness. Student loan cancellation generally refers to a broader, policy-based effort to erase student loan debt entirely, sometimes discussed in legal and political contexts. That could apply to many borrowers, irrespective of their circumstances, and is currently a topic under legal discussion.
On the other hand, student loan forgiveness is a more specific process when a borrower meets certain conditions, often tied to their profession or repayment history. Several forgiveness programs for which you, as a borrower, might qualify to apply.
Types of Forgiveness Programs
The following are some examples of loan forgiveness programs.
Public Service Programs
Borrowers who work in public service can have their loans forgiven under The Public Service Loan Forgiveness program. To qualify, borrowers must have made 120 monthly payments on their student loan debt while working full-time for a qualifying employer. The loan payments must also be made under a qualifying repayment plan, most commonly an income-driven repayment plan. In addition, they must work for:
- Eligible non-profit organizations
- Government agencies
Public service loan forgiveness programs are not taxable income. That means you do not have to pay taxes on the funds.
Teacher Programs
The Teacher Loan Forgiveness Program is designed for eligible teachers, allowing them to receive up to $17,500 in loan forgiveness. Teachers must be employed full-time for five consecutive school years to qualify for the program. This employment must be in a low-income elementary or secondary school or educational service agency.
This program applies to:
- Federal Direct Unsubsidized Loans, also known as Unsubsidized Stafford loans
- Federal Direct Subsidized Loans, also known as Subsidized Stafford loans
Notably, the subject area a teacher specializes in can affect the amount of loan forgiveness they are eligible for. Mathematics, science, and special education teachers may receive up to the full $17,500 in forgiveness. However, teachers of other subjects can still qualify for loan forgiveness, although the amount may be less than the full $17,500.
Perkins Loan Cancellation and Discharge Program
The Perkins Loan Cancellation and Discharge program provides cancellation or discharge options for individuals who have taken a Federal Perkins Loan for their education. That means that under certain conditions, these individuals do not have to repay some or all of their loans. These conditions often relate to the borrower's profession or other circumstances.
For instance, the borrower may be eligible for up to 100% loan cancellation if they work in certain professions, such as teaching, nursing, law enforcement, or volunteer in services like the Peace Corps. The loan can also be discharged if the borrower becomes permanently disabled, files for bankruptcy (under rare circumstances), or in the event of the borrower's death. The cancellation percentage usually increases for each year of service in the specified profession or volunteer program.
Income-Driven Repayment Plans
Income-driven repayment plan, or IDR plan, is an instance in which a person does not have the financial means to repay their debt through a 10-year standard repayment plan. An IDR plan will base payments on your family size and discretionary income. That often lowers your monthly payment. You could have as long as 25 years to repay the terms, and after that term ends, they may forgive the rest of the loan. However, the specific repayment period can vary based on the type of loan, when they took out the loan, and their income.
The Federal government may consider the remaining funds' forgiveness as income, which means you may need to pay taxes on it.
Other Loan Forgiveness Plans
Consider some other loan forgiveness programs available that may fit your needs.
- Total and Permanent Disability Discharge: If you become totally and permanently disabled, you may be able to request a discharge of your student loans. That is available for Direct Loans, FFEL program loans, and Perkins loans. This program also applies to TEACH Grant service obligations.
- Closed School Discharge: For most student loans, if your school closes while you are enrolled or within 120 days after withdrawing from it, you may be eligible for discharging of Direct, FFEL program, and Perkins federal loans.
- Discharge Due to Death: The loan gets discharged if a person dies while still owing federal student loans. The estate's value does not repay it.
- Bankruptcy-related Discharge: Bankruptcy proceedings typically do not allow the discharge of student loans. In some situations, it may be an option if you can prove you are insolvent and the student loans are hampering your ability to build financial health.
- False Certification Discharge: Some people may be eligible to have their direct or FFEL program loans discharged if their school falsely certifies their eligibility to receive a loan.
- Borrower Defense to Repayment: This method allows for the discharge of some direct loans if you can show that the school did something or failed to provide something related to your loan. You can address this complex method best by obtaining legal counsel.
Getting Professional Help
Student loan forgiveness is not a given tool. Even in these situations, you must apply for and request that the U.S. Department of Education or another authority discharge the debt. When you are unsure if that is the path you can take or you are unsure of the next steps, contact a professional who can offer insight and guidance to you about all of your options.