Student Loan Forgiveness
What Is Student Loan Forgiveness Relief?
Student loan forgiveness relief is a process that eliminates a portion of your educational loan debt without penalties. This means you are no longer obligated to make your loan payments.
The Federal government offers various student loan forgiveness relief programs, where you qualify based on your profession or government service. Each program has their specific requirements to be eligible for this benefit. Once you are eligible for one of these forgiveness programs, the servicer of your student loan discharges the balance that you owe on the loan. It is treated as your having paid off the loan balance as required.
Public Service Student Loan Forgiveness
The Federal government offers a variety of federal student loan forgiveness relief programs as a means of job recruitment and employee retention. This is to to encourage students to enter relatively low-paying careers like firefighting, teaching, government, nursing, public interest law and the military. Also, is an acknowledgement by the federal government that for many, the salary you earn after earning your degree does not match the educational expenses you incurred in the process. Given that so many adults are burdened with high student loan debt, the federal government student loan forgiveness relief programs serve as an indirect form of educational subsidy.
Public Service Forgiveness Guidelines
The Public Service Loan Forgiveness program (PSLF) offers complete loan forgiveness to those who work in the public sector. This includes non-profit employees, volunteer organizations, public school teachers and staff, and government employees to name a few.
How Much Loan Forgiveness?
Qualifying public sector employees receive complete student loan forgiveness after 10 years or 120 payments versus the standard forgiveness term of 20 to 25 years. Also there is no dollar cap on the amount of money that you can have forgiven through this student loan forgiveness program.
Any qualifying loan balance that remains after 10 years is forgiven in its entirety. The IRS does not view the forgiven debt as taxable income.
The PSLF program cares more about who you work for rather than what you do. To qualify, you must work or volunteer for one of the following:
- A government organization at any level
- A tax-exempt 501(c)(3) not-for-profit organization
- A not-for-profit organization that provides qualifying public services
You must also work full-time. You are considered a full-time worker if your employer considers you a full-time employee or if you work a minimum of 30 hours per week, whichever is greater.
You must be enrolled in one of the four Federal Income-Driven-Repayment loan plans:
- Income Based Repayment (IBR) Plan
- Pay As You Earn (PAYE) Plan
- Revised Pay As You Earn (REPAYE) Plan
- Income Contingent Repayment (ICR) Plan.
If you have a Federal Perkins or Federal Family Education loan, they are eligible for PSLF if you consolidate them into a Direct Consolidated Loan.
You apply for the PSLF program after completing 120 qualifying payments while working in an eligible job. You should complete the Employment Certification form annually to verify you are making qualifying payments and every time you switch jobs.
Forgiveness | Cancellation | Discharge
The terms forgiveness, cancellation, and discharge mean the same thing, but they are used in different ways. If you are no longer required to make payments on your school loans due to your job, this is generally called forgiveness or cancellation. If you are no longer required to make payments on your school loans due to other circumstances, such as a total and permanent disability or the closure of the school where you received your loans, this is generally called discharge.
If you have private student loans, there are no ways to get student loan forgiveness. The best bet is to consider refinancing your private student loan to lower your interest rate or change your payment terms to hopefully make your loan more affordable.
Your student loan is technically an unsecured deb as no collateral was pledged to the lender to secure the loan. The only “guarantee of payment” you made to the lender was the promise of repayment from your future earnings. However, unlike other types of unsecured debt, student loans (federal or private) are excluded, with very few exceptions, from being discharged in a personal bankruptcy judgement.
Federal Student Loan Repayment
The Federal Student Loan Repayment program is designed to attract top talent to serve in the public sector and encourage retention as an additional employee benefit. Federal agencies can designate funds and offer student loan repayment assistance to highly qualified candidates.
Only federal student loans are eligible for this repayment program. If you’re a federal employee and have Parent PLUS loans for your child, you still qualify for the program.
Federal employees who are eligible receive a principal reduction of $10,000 per year (up to a maximum of six years or $60,000) on their federal loans. This will drop your overall loan balance, making monthly loan payments smaller and thus more manageable. Payments are made by the federal agency directly to your student loan holders and you will need to pay taxes on these payments.
This student loan forgiveness program allows federal employees to remain eligible for the Public Service Loan Forgiveness (PSLT) program. This means federal employees get a principal reduction on their student loan of up to $60,000, then under the PSLT program, their remaining federal loan balance would be forgiven after 10 years of on-time payments.
Each federal agency has their unique requirements for participating in this program. For example, you may or may not have to have completed your degree to qualify. The federal agency that you work for decides on an individual basis.
There are more than 20 independent agencies that participate in this type of federal employee student loan forgiveness, as well as 15 cabinet-level departments.
Qualified candidates must sign a service agreement and commit to working for three years at the agency that is offering student loan repayment. In order to continue the student loan repayment assistance, employees must meet job performance standards set by their employer.
A student loan is eligible if it is made, insured, or guaranteed under parts B, D, or E of title IV of the Higher Education Act of 1965 or is a health education assistance loan made or insured under part A of title VII or part E of title VIII of the Public Health Service Act. A summary list is noted below:
Loans made or insured under the Higher Education Act of 1965 include the Federal Family Education Loans (FFEL):
- Subsidized Federal Stafford Loans
- Unsubsidized Federal Stafford Loans
- Federal PLUS Loans
- Federal Consolidation Loans
William D. Ford Direct Loan Program (Direct Loans):
- Direct Subsidized Stafford Loans
- Direct Unsubsidized Stafford Loans
- Direct PLUS Loans
- Direct Subsidized Consolidation Loans
- Direct Unsubsidized Consolidation Loans
Federal Perkins Loan Program:
- National Defense Student Loans (made before July 1, 1972)
- National Direct Student Loans (made between July 1, 1972, and July 1, 1987)
- Perkins Loans (made after July 1, 1987)
Loans made or insured under the Public Health Service Act include the following:
- Loans for Disadvantaged Students (LDS)
- Primary Care Loans (PCL)
- Nursing Student Loans (NSL)
- Health Professions Student Loans (HPSL)
- Health Education Assistance Loans (HEAL)
There is no formal application for Federal Student Loan Repayment program.
You will need to directly contact the federal agency or review their public information regarding participation in their specific student loan forgiveness program.
Disability Discharge Loan Forgiveness
Total and Permanent Disability Discharge program (TPD) forgives (discharges) federal student loan borrowers from having to repay their loans on the basis of total and permanent disability.
Before your federal student loans or TEACH Grant service obligation can be discharged , you must provide information to the Department of Education to show that you are totally and permanently disabled. The Department will evaluate the information and determine if you qualify for a TPD discharge.
Some private student loan lenders also provide a disability discharge. These include Sallie Mae, Wells Fargo, Discover, and New York Higher Education Services Corp.
Depending on where you live and work, you could qualify for partial or total forgiveness of your student loans. If you aren’t eligible, look into other debt relief options for dealing with your student loans.
Even if you started out on a certain Federal student loan plan, you don’t have to stick with it forever. Instead, feel free to adjust your plan as your circumstances and goals change over the years.
When in doubt, contact your student loan servicer to move forward with your life.
An overview of student loan forgiveness relief is presented. This includes 1) What Is Forgiveness; 2) Public Service Loan Forgiveness; 3) Forgiveness Guidelines; 4) Forgiveness | Cancellation | Discharge; 5) Federal Repayment Program; and 6) Disability Discharge Loan Forgiveness.
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