Student Loan Debt Forgiveness can be achieved and if you are wondering how this works and perhaps what types of student loans you can access or fall into then this article is for you. Read down for the full gist!
What is Student Loan Forgiveness?
Student loan debt forgiveness releases you from the obligation to repay part or all of your federal loan debt
The prospect of seeing that debt evaporate may seem like a dream come true. In reality, though, not that many people end up being eligible.
Requirements vary depending on the type of loan, but most offer forgiveness only for those employed in certain public service occupations.
Student Loan Forgiveness vs. Loan Discharge
Although their end results are similar, student loan forgiveness is not the same as student loan discharge, which immediately stops the borrower’s obligation to repay the debt.
Federal education loans may be eligible for discharge under certain circumstances beyond the borrower’s control. Most loans can be discharged in the following situations:
- Permanent disability of the borrower.
- Closure of the school during the time of study.
- Falsification of the loan qualifications by the school.
- Use of identity theft on someone else’s part to secure the loan.
- Failure of the school to refund required loans to the lender.
- Death of the borrower.
Circumstances beyond the borrower’s control” do not include things like having to drop out of college before graduating or being unable to find a job after graduation.
However, there is a possibility that they could include a school using illegal recruiting tactics, such as guaranteeing the student a well-paid job upon graduation.
In June 2015, for example, the U.S. Department of Education promised debt relief to students of the bankrupt for-profit Corinthian Colleges chain.
How to Get Student Loans Forgiven
Student loan forgiveness can be earned in two primary ways: by working in public service or by making payments through an income-contingent payment plan for a (long) period. Each has its own conditions and limitations. Neither route is quick or easy.
Public Service Loan Forgiveness
The Public Service Loan Forgiveness Program (PSLF) is designed specifically for people who work in public service jobs, either for the government or for a nonprofit organization.
You may also be able to get all or part of your loan forgiven through certain types of volunteer work, military service, or medical practice
In order to have debt forgiven under the public service program, you must first make 120 qualifying payments (meaning, paying the minimum amount due on time).
These payments must be made while you are working for a qualified employer—generally, a federal, state, or local government or a nonprofit organization with tax-exempt status.
In effect, you qualify after 10 years on the job and 10 years of monthly payments.
Potentially eligible positions include those in nursing, government, police and fire departments, and social work.
Only payments made after Oct. 1, 2007, qualify toward earning eligibility. Only direct loans made by the federal government (currently known as the William D. Ford Federal Direct Loan Program) are eligible for student loan forgiveness.
Non-federal loans (those issued by private lenders and loan companies) aren’t part of this program.
If you do not have a William D. Ford Direct Loan and, instead, borrowed through the Federal Family Education Loan Program (FFEL) or the now-defunct Perkins Loan Program, you are allowed to consolidate those debts into a Direct Consolidation Loan.
The new consolidated loan would then be eligible for public service loan forgiveness, under the same terms as those described above.
Keep in mind that only payments made on the combined loan count toward the 120-payment minimum; earlier payments made on the old loans aren’t considered.
The terms for student loan forgiveness are subject to change and the shifting political winds. For one thing, there’s a rigid time limit: “Public service loan forgiveness occurs after 10 years of full-time service.
It is an all-or-nothing benefit, so borrowers who stop working before reaching the 10-year mark will get no forgiveness.”
To apply for the public service forgiveness program, both you and your employer need to complete and file the program’s employment certification form.
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Repayment Plans With Loan Forgiveness
If you aren’t working in a public service position, you may still be able to get a portion of your student debt forgiven but it will take longer.
Federal income-driven repayment plans, which are designed to help graduates who would have trouble making payments within the standard 10-year time frame, also allow for some debt forgiveness after a certain period.
These plans include:
- Income-Based Repayment (IBR). Maximum monthly payments will be 15% of discretionary income. Forgiveness eligibility comes after 25 years of qualifying payments.
- Income-Contingent Repayment. Payments are recalculated each year based on gross income, family size, and outstanding federal loan balance. Forgiveness eligibility is after 25 years of qualifying payments.
- Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE). Maximum monthly payments will be 10% of discretionary income. Forgiveness eligibility is after 20 years of qualifying payments. The government may even pay part of the interest on the loan.
In addition, if you work for a federal agency, your employer may repay up to $10,000 of your loans per year, with a maximum of $60,000, through the Federal Student Loan Repayment Program.
Types of Loan Forgiveness
The summaries below offer a quick view of the types of forgiveness, cancellation, and discharge available for the different types of federal student loans.
Public Service Loan Cancellation
Available for Direct Loans. If you are employed by a government or not-for-profit organization, you may be able to receive loan forgiveness under the Public Service Loan Forgiveness (PSLF) Program.
PSLF forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer.
Teacher Loan Cancellation
Available for Direct Loans and FFEL Program loans.
If you teach full-time for five complete and consecutive academic years in a low-income elementary school, secondary school, or educational service agency, you may be eligible for forgiveness of up to $17,500 on your Direct Loan or FFEL Program loans.
Closed School Cancellation
Available for Direct Loans, FFEL Program loans, and Perkins Loans. If your school closes while you’re enrolled or soon after you withdraw, you may be eligible for discharge of your federal student loan
Perkins Loan Cancellation and Discharge
Available only for Federal Perkins Loans. You may be eligible to have all or a portion of your Perkins Loan canceled. This includes Perkins Loan Teacher Cancellation.
Total and Permanent Disability Cancellation
Available for Direct Loans, FFEL Program loans, and Perkins Loans. If you’re totally and permanently disabled, you may qualify for a discharge of your federal student loans and/or
Cancellation Due to Death
Available for Direct Loans, FFEL Program loans, and Perkins Loans. Federal student loans will be discharged due to the death of the borrower or of the student on whose behalf a PLUS loan was taken out.
Cancellation in Bankruptcy (in rare cases)
Available for Direct Loans, FFEL Program loans, and Perkins Loans. In some cases, you can have your federal student loan discharged after declaring bankruptcy. However, discharge in bankruptcy is not an automatic process.
Borrower Defense to Repayment
Available for Direct Loans. You may be eligible for discharge of your federal student loans based on borrower defense to repayment.
If you took out the loans to attend a school and the school did something or failed to do something related to your loan or to the educational services that the loan was intended to pay for.
The specific requirements to qualify for borrower defense to repayment discharge vary depending on when you received your loan.
Loan Forgiveness is obtainable and accessible. Follow the right process and be sure to know the difference between loan forgiveness and discharge.
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