In this time of uncertainty, paying off your student loans may feel even more complicated than usual — student debt has reached $1.6 trillion by 44.7 million borrowers in 2020. If you’re facing financial hardships, any debt you owe is likely harder to pay. Thankfully, there are options for getting student loans forgiven.
Student loan forgiveness is a government program that allows you to stop making payments towards your qualifying federal loans. In addition to student loan forgiveness, there are also cancellation and discharge programs available. Student loan forgiveness virtually means the same as loan cancellation and discharge, but it’s used under various circumstances.
For example, if the loan borrower is not required to pay off the loan anymore due to their job, this usually falls under a forgiveness or cancellation program. If the loan borrower doesn’t have to make more payments because the school where the loans were issued closed or they have a disability, then this qualifies under a discharge program.
Fortunately, student loan forgiveness programs may offer cash-strapped students some relief during this uncertain time. Depending on what your occupation or situation is, you may be able to secure total or partial forgiveness of your loans after a set period of time.
As the current landscape is continuously changing due to COVID-19, be sure to check in with your loan provider for updated benefit information as you may be eligible for additional payment relief under the CARES Act. Below we cover how to qualify for student loan forgiveness and the different programs available.
How Do You Qualify for Student Loan Forgiveness?
Getting your student loans forgiven may sound too good to be true, but there are legitimate ways to apply for these programs. Before applying, you may be wondering how to know if you’re eligible for student loan forgiveness. Qualifying for these programs largely depends on the specific type of program you apply for.
Generally, some basic qualifications may include the type of profession you have and how many years you make on-time payments while enrolled in a qualifying repayment plan.
However, you’re not qualified if you have private loans. The following options are only available to borrowers that have federal student loans.
You can apply to these forgiveness, cancellation, and discharge programs free of charge. Read more about these programs to see which one is right for you.
1. Public Service Loan Forgiveness
Federal Public Service Loan Forgiveness (PSLF) offers tax-free forgiveness of your remaining student loans after working in a qualified position in the public sector and making 120 qualifying payments. Qualifying jobs typically include government positions at the local, state, or federal level and non-profits.
To benefit from PSLF, you need to make payments while you’re registered for an income-driven plan. This program is perfect for borrowers who want their student loans forgiven and who have their hearts set on a career in public service, regardless of how much they earn. Keep in mind that in order to qualify, you must report your income each year and provide documentation that proves you’re working at a qualified job.
2. Teacher Loan Forgiveness
An option that provides a great way for educators to get up to $17,500 federal direct or Stafford student loans forgiven is teacher loan forgiveness. This program is available for teachers who work in qualified elementary or secondary schools that serve mostly low-income students for five consecutive years or longer. To qualify, you must also be employed full time and must have taken out loans after October 1, 1988.
3. Income-Driven Repayment Plan
For borrowers who do meet certain income guidelines, an income-driven plan is another option to consider to get student loans forgiven. These programs include: Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR).
When enrolled in one of these plans, your remaining loan balance will be eligible for forgiveness after 20 or 25 years, depending on the plan. Income-driven repayment plans are most beneficial for individuals who have large loan balances relative to their income.
4. Health Care Loan Forgiveness
Depending on your profession, you may qualify for special loan forgiveness programs that are not available for everyone post-graduation. For example, nurses and other health care workers have several options to get student loans forgiven, such as the Health Professional Loan Repayment Program (NURSE Corps), Federal Perkins Loan Cancellation, and Public Service Loan Forgiveness (PSLF).
Public Service Loans are the most common and least competitive option, and are the most likely option for nurses. Other health care providers, like doctors who meet certain criteria, can get up to $35,000 back in student loans.
5. Military Student Assistance
Some branches of the US military offer student loan forgiveness programs, with the Army and Navy paying the maximum amount allowed by law for active duty enlistments. Other military personnel in the Air Force, National Guard, and Coast Guard may also qualify. For example, those who are qualified can earn up to $50,000 in federal student loan repayment per year of service.
Similar to forgiveness programs, cancellations are another option if you’re wondering how to get student loans forgiven. Utilize a cancellation program if you’re no longer required to make payments on your loans due to your job.
Perkins Loans Cancellations
Federal Perkins Loans may be forgiven for students whose careers meet certain criteria post-graduation. To qualify, you need to work in certain qualifying professions that meet a public need, serve in the armed forces, work in certain health care positions, or find qualifying work in a number of different careers that include everything from librarians to attorneys.
Cancellation of Federal Perkins Loans may be a great option for anyone who doesn’t mind working in high-need professions. One thing to note is that you have to apply for Perkins Loan forgiveness on an annual basis and the repayment is distributed over the course of four to five years. The path to full and partial cancellation is gradual.
Another option for student loan forgiveness is applying for a discharge program. Unlike forgiveness or cancellation programs, discharge programs are available to you if you can no longer make payments due to reasons out of your control, such as permanent disability, or if the school where you received student loans closed.
1. Disability Discharge
If you’re looking to get your student loans forgiven and are out of work due to a permanent mental or physical disability, you may be qualified for Total and Permanent Disability Discharge (TPD). This program will allow you to have the rest of your student loan payments canceled.
For eligibility, you must demonstrate that you’re totally and permanently disabled through documentation from the Department of Veteran Affairs, the Social Security Administration, or a physician. Keep in mind that disability discharge can be revoked if your income is above the federal poverty guideline or if you go back to a new school and receive a loan.
2. Closed School Discharge
If your school closed, you may get your student loans forgiven through Closed School Discharge. This program is open to students who did not receive a degree and were enrolled or left within 120 days of the closure. Although you still have to make loan payments until it’s processed, once you’re approved you will get the money you paid towards the loan refunded.
3. Discharge Due to Death
If you die, then your student loans will get discharged due to death. The same is eligible if a parent or borrower died that took out a PLUS loan for the student. You will be required to prove this through documentation obtained in the form of an original or certified death certificate.
Things to Consider Before Seeking Loan Forgiveness
This section includes various caveats to these programs when you’re seeking loan forgiveness.
1. Be Wary Of Scams
There are many fraudulent companies that claim to be debt-relief platforms and will charge you upfront to apply for student loan forgiveness. However, with legitimate government companies, this is not the case and you can apply without any fees. Make sure to do your research and stick to the programs explained above.
2. Loans That Are Forgiven Might Be Taxable
Forgiven, discharged, and canceled loans are usually taxed as income, but won’t be if you worked in a certain profession, such as a teacher or any other position that serves the public.
3. Defaulted Loans Can’t Be Forgiven
If your loans have gone into default, meaning you’ve failed to make the payments, you’re ineligible for most forgiveness programs. However, you could be eligible if you repay your default and you are still eligible for discharge programs.
Who Pays Off Student Loan Forgiveness?
You may be wondering where all the money goes once a student loan is forgiven. Simply put, these forgiven federal loans are funded by American taxpayers. This is along the same lines as funding your education by using government grants.
What To Do If You Don’t Qualify for Student Loan Forgiveness
There are several things you can do if you don’t qualify for student loan forgiveness and you need another option to help lessen the burden of student finances:
- Refinance: Consider refinancing your student loan debt to qualify for a lower interest rate. This option may help you save thousands. Popular student loan refinancing lenders include SoFi and Earnest.
- Income-Based Repayment: Switching to this option may decrease your monthly bill and allow for some wiggle room to avoid default.
- Try a New Repayment Strategy: Opt to pay off your smallest loan balance first or the loan with the highest interest rate first. Both options have pros and cons, so it depends on what fits you best.
While these student loan forgiveness programs usually require some sacrifice on your part, they can be a solution for those in need during events such as COVID-19.
Always take special care to understand the commitment and involvement first of student loan forgiveness. You may not like the idea of repaying your student loans, but signing up for a forgiveness program that’s not right for you could spell trouble. Some basic due diligence can go a long way towards ensuring you find a student loan forgiveness program that fits your lifestyle and goals. Visit Mint’s Money Hub for more information about managing your finances during COVID-19.