Student loan debt is increasing every year across all age groups.
As graduates head out into the workforce, many find that they cannot find jobs which will allow them to pay off their loan via the borrowing terms.
More and more people are turning to student loan forgiveness to ease the burden.
What is student loan forgiveness and who qualifies for it?
Let’s dive deeper into it and get all of your questions answered right here.
- What Is Student Loan Forgiveness?
- So Who Qualifies?
- When To Consolidate Your Federal Student Loans
- Top Advantages to Student Loan Consolidation
- Top Disadvantages of Student Loan Consolidation
- Other Ways To Get Student Loan Forgiveness
- Top FAQs about Student Loan Forgiveness
What Is Student Loan Forgiveness?
Student loan forgiveness is a circumstance where federal student loans backed by the federal government are partially canceled.
This program can discharge or forgive the loan.
If this happens the borrower will not have to pay back the balance of the loan.
Government-backed loans include Federal Perkins Loans or Direct Subsidized Loans.
So Who Qualifies?
Public Service Loan Forgiveness
If you have a public service sector job, you have a good chance of getting federal student loan forgiveness. Fields include nonprofit organizations, government, nurses, police officers, etc.
You can find the list of student loan forgiveness careers here.
The Public Service Loan Forgiveness (PSLF) program allows borrowers who work in a designated field to have the balance of the student loans waived after 120 consecutive payments (10 years).
You work for the government. You graduate with $40,000 in student loan debt.
At a 6% interest rate you consolidate your student loans under a Direct Loan, this extends your repayment to 30 years, but you only have to pay 10 years of that note.
Each month, your payments goes towards your 120 payments required to have your student loans forgiven.
After you make your 120th payment, you’re eligible to have your loan forgiveness kick in and the balance waived.
Pretty nice benefit, right?
Here how that can go sideways real quick
Before you consolidate your student loans you want to be sure you understand the potential consequences.
Let say you’ve graduated college and you’ve been making payments.
If this is true you’ve likely had several different loans and you’re making several different payments towards those loans.
While it can be stressful maintaining all these payments, it may make since to consolidate them into one low payment…
If you’re under an income-driven repayment plan or have made qualifying payments toward PSLF, consolidating your loans will cause you to lose credit for those payments.
For example, if you’ve has 3 years of consecutive payments before consolidating your federal student loans, those payments will not count after consolidation.
The clock starts over.
(Pro Tip: Need an easy and fast way to find out if you qualify for student loan forgiveness? Download this free guide to find the best way you can take advantage of student loan forgiveness programs. Learn more here.)
When To Consolidate Your Federal Student Loans
Consolidate your loans is a good idea even if you’re pursuing Public Service Loan Forgiveness (PSLF).
- Do this while you’re in your grace period
- As soon as you graduate and you know you’re in a field that qualifies, it makes sense to consolidate. This way you don’t make a single payment without it counting towards your loan forgiveness.
- You want an Income Driven Plan
- Some federal loans do not qualify for student loan forgiveness. To get around this red-tape, you can consolidate all your loans into a Direct Consolidation loan, then apply for an income driven plan.
- You can’t afford the monthly bill
- With all the expenses that come up in life, sometimes you simply can’t afford the payments. If you need to lower your payment, student loan consolidation is a good idea.
1. Pay Less Interest
Prior to 2006, the Federal Government was issuing variable rate student loans.
When you consolidate your loans, you have the option to switch out variable-rate loans for one fixed rate loan. This can protect you from having to pay higher interest in the future if interest rates go up.
The lower your interest rate, the more of your payment goes towards principal.
2. Reduce Monthly Payments
If you feel suffocated by your monthly payments, you can lower them by negotiating a lower interest rate or increasing your repayment term. If you increase your payment term, you will increase how much you spend in interest, but lowering your payment can give you important breathing room each month.
You can also reduce the number of monthly payments you’re making on multiple loans by consolidating into one loan – which means only one payment each month.
3. Eliminate a Cosigner
When you took out your loans, you were likely a young student with no income and limited credit history, which didn’t make you attractive to lenders. You may have needed a cosigner with credit and income history just to take out your loans.
By consolidating into a new loan, you can remove co-signers and their responsibilities from your loans.
1. Large Taxable Income
Most student loan forgiveness plans require the borrower to be on a student loan repayment plan. You’ll reap the most benefit on an income-driven plan, which allows you to make lower payments and have more of your loan forgiven. However, once you’ve made your final payment, the forgiven amount can become taxable income.
So while you may dodge a major bullet of paying tens of thousands of dollars, you will still pay taxes on those tens of thousands of dollars.
You will need to be prepared for your surprise tax bill at the end of your loan term.
2. Limiting Career Tracks
Public Service Loan Forgiveness is limited to certain career tracks, namely those in government organizations, not-for-profit organizations, and certain qualifying public services.
It’s not the specific job you do that matters, but who your employer is.
3. Annual Re-certification and Paperwork… Can’t Miss
Public Service Loan Forgiveness requires a lot of paperwork, and servicers are not anxious to help you with it. Because they are earning less on your loan, you are not a priority to them. You must submit an annual re-certification form each year, and missing one can be costly.
This is very under utilized…In a recent post by USA Today almost a fourth of all Americans who attended college qualify for this, and yet hardly anyone knows to try this loan repayment approach.
Other Ways To Get Student Loan Forgiveness
You don’t have to work for the government or a nonprofit to qualify for this kind of loan repayment program.
One of the more popular strategies includes switching your loans over to an Income-Based Repayment Plan (IBR).
Here’s some more info to check out:
When it comes to Teacher Student Loan Forgiveness
Teachers can qualify for 4 types of Federal Student Loan Forgiveness: Federal Teacher Cancellation for Perkins Loans, Teacher Loan Forgiveness, Public Service Loan Forgiveness, and State-Sponsored Student Loan Forgiveness.
Only teachers in extreme hardship will receive Cancellation for Perkins Loans, which forgives 100% of the debt after 5 years. However, teachers must qualify by teaching at a low-income school, teaching special education, teaching math, science, a foreign language, or bilingual education, or teaching a subject that has a state shortage.
Teacher Loan Forgiveness can only be applied for after teaching for 5 years, but up to $17,500 can be forgiven. You must hold a state license for teaching, and only special education and secondary mathematics or science teachers may qualify for up to $17,500 in forgiveness. Other teachers may qualify for $5,000 in forgiveness.
With Public Service Loan Forgiveness, your loan balances are completely forgiven after 120 on-time payments, and the balance of the loan is not taxed.
State-Sponsored Student Loan Forgiveness is offered by individual states if you teach in a “high-need” area. There is a searchable database that allows you to find local forgiveness programs you could qualify for.
When it comes to Veteran Student Loan Forgiveness
Any person who served in our armed forces or national guard without being dishonorably discharged can qualify for Public Service Loan Forgiveness. You will still need to make the 120 on-time payments before the loan is forgiven.
Disabled veterans with a service-connected disability can take advantage of a program that can cancel Perkins Loans, FFEL, and Direct Loans.
If you’re a veteran who served in an area of critical danger or fire, you can qualify for the National Defense Student Loan Discharge, which forgives Stafford and Perkins Loans.
There are also programs for Army Reserve soldiers, and private organizations that will help veterans pay their loans. Veterans have a number of avenues available to them for loan forgiveness and decreasing their interest rates.
When it comes to Student Loan Forgiveness for Military Spouses
There are currently no programs that specifically forgive loans for military spouses, despite increasing interest in creation of these programs.
However, military spouses can take advantage of Public Service Loan Forgiveness by taking a job with the government on-base or with a non-profit organization. You will still need to make your 120 on-time payments while working 30+ hours each week, but after 10 years, your balance will be forgiven.
During times of hardship, you can request a forbearance or deferment. This is not a direct solution, but can remove your loan payments from your monthly bills at a time when it is helpful to do so.
When it comes to Non-Profit Employee Forgiveness
Nonprofit workers at a traditional 501(c)(3) organization qualify for Public Service Loan Forgiveness. You must work at least 30 hours each week at a qualifying institution, or work at 2 qualifying jobs for a combined 30 hours each week. Only federal direct loans are forgiven under this program. Other loans, such as Perkins loans, Stafford loans, and PLUS loans, do not qualify for forgiveness under this program.
There is no limit on how much of your loan can be forgiven. All you have to do is make 120 consecutive, on-time payments. You can even do so on an income-driven plan, to lower each payment amount. After 10 years, your loans will be forgiven.
When it comes to Student Loan Forgiveness for the Disabled
Student loan forgiveness is granted to people with Total and Permanent Disability, or TPD. TPD means you are unable to work due to a serious illness or long-term injury. The loans that can be forgiven are: FFEL Program loan, Federal Perkins Loan Program loan, Direct loan, and TEACH Grant service obligation.
One downside to disabled loan forgiveness is that the forgiven balance is considered taxable income. Be prepared for a large tax bill the year that your loans are forgiven.
You will also have to prove your disability status and notify your lender that you are filing for TPD discharge. Disability Discharge will send you the required documentation and determine if your loans are eligible to be forgiven. Disability Discharge will also contact your lenders for you, and at a minimum your loan payments will be delayed for 120 days while you complete the application.
Keep in mind that not everyone with TPD has their loans forgiven.
We recommend consulting with an expert to ensure you enter into the right repayment and understand your options.
(Bonus Tip: Want all the pros and cons of student loan forgiveness all in one easy and accessible spot? The Definitive Guide To Student Loan Forgiveness will go over each type of forgiveness program and weigh your options for you, so you don’t have to. Click here to get more info on the free guide.)
Top FAQs about Student Loan Forgiveness
Q: Does my income level determine my eligibility for PSLF?
There is no income requirement to quality for PSLF. However, your income may be a factor in if you have a remaining loan balance after 120 payments.
Q: Can I be certain that the PSLF Program will exist by the time I have made my 120 qualifying payments?
We can’t make any guarantees about the future availability of PSLF. The PSLF Program was created by Congress, and Congress could change or end the PSLF Program.
Q: What counts as a government employer for the PSLF Program?
Any U.S. federal, state, local, or tribal government agency is considered a government employer for the PSLF Program.
This includes employers such as the U.S. military, public elementary and secondary schools, public colleges and universities, public child and family service agencies, and special governmental districts (including entities such as public transportation, water, bridge district, or housing authorities).
A government contractor isn’t considered a government employee.
Service as an elected member of the U.S. Congress is not qualifying employment for PSLF.
Q: Which not-for-profit organizations qualify as eligible employers for the PSLF Program?
Eligible not-for-profit organizations include most private elementary and secondary schools, private colleges and universities, and thousands of other organizations. Link to IRS’s searchable database of tax-exempt organizations.
If the NFP organization is not tax exempt, it must provide one of the following public services:
- Emergency management
- Military service: service on behalf of the U.S. armed forces or National Guard
- Public safety
- Law enforcement: crime prevention, control or reduction of crime, or the enforcement of criminal law
- Public interest law services: legal services provided by an organization that is funded in whole or in part by a U.S. federal, state, local, or tribal government
- Early childhood education: includes licensed or regulated childcare, Head Start, and state-funded kindergarten
- Public service for individuals with disabilities and the elderly
- Public health: includes nurses, nurse practitioners, nurses in a clinical setting, and full-time professionals engaged in health care practitioner occupations and health support occupations, as such terms are defined by the Bureau of Labor Statistics
- Public library services
- School library or other school-based services
Q: I’m employed full-time by a qualifying NFP organization, but my job duties include religious activities. Does my employment qualify for PSLF?
It depends on how much of your job is related to religious activities. Your employer cannot include the time you spend participating in religious instruction, worship services, or any form of proselytizing.
Q: What types of public service jobs will qualify me for loan forgiveness under the PSLF Program?
The specific job you perform doesn’t matter, as long as a qualifying employer employs you.
For example, if you’re a full-time employee of the pubic school system, your employment meets the requirement of PSLF regardless of your position (teacher, administrator, support staff, etc.).
Q: I am a teacher who does not teach over the summer break. If I make payments during the summer, do those payments count towards PSLF?
Payments you make during the summer will count if you have a contract for an employment period of at least eight months and you work an average of 30 hours per week during that period, and if your employer still considers you to be employed full-time during summer break.
Of course, the payments must otherwise meet all PSLF requirements. In this circumstance, your employer should include the dates of the summer break when reporting your dates of employment, even though you weren’t actually teaching during that period.
Q: I’m working for more than one employer during the same period of time, but I’m not employed by either on a full-time basis. Will my combined employment be considered full-time for PSLF?
Yes, as long as combined your hours reach 30 per week and each employer is a qualifying employer.
Q: Can I receive PSLF if I have more than one employer over the course of 10 years?
Yes, as long as you can show that you were employed by a qualifying employer at the time you made each of the 120 qualifying payments.
Q: I’m employed by a 501©(3) organization, but I work outside of the United States. Does my employment qualify?
Yes, you can perform your work anywhere.
Do you have any tips on student loan forgiveness? Let us know in the comments section.
Editor’s Note – This post was originally published in January 2017 and has been updated for quality and relevancy.