Student Loan Forgiveness: What you Need to Know

In 2020, America’s collective outstanding student loan balance reached $1.56 trillion. To put that into perspective, that’s roughly equivalent to the annual GDP of Mexico. And Sweden. Combined. Even when you divide it among the roughly forty-five million people holding these loans, that’s a lot to handle. So for many of those borrowers, student loan forgiveness sounds pretty appealing.

Sadly, it’s not as simple as you’d hope. Who qualifies? What kinds of loans can be forgiven? How do you apply? If you’re struggling with your student loans and looking for the answers to these questions, look no further. We’ve put together the definitive guide to student loan forgiveness for you below.

Who Should Look for Student Loan Forgiveness?

Unfortunately, student loan forgiveness is only accessible for borrowers with federal student loans. If you have a mix of federal and private student loans, only the federal ones will be eligible for eventual forgiveness.

Even for the people who do qualify, forgiveness isn’t a get out of jail free card. Though the program requirements vary, the vast majority of paths to student loan forgiveness are long and intensive. You’ll probably need to make on-time payments for many years and jump through no small amount of hoops to qualify.

That said, it can still be a godsend for borrowers who can claim one or more of the following:

  • Are unable to pay off their loans years after graduating
  • Struggle to afford their monthly payments
  • Go through unusual and significant personal hardship

Types of student loan forgiveness programs

Student loan forgiveness is a broad term that we’ll use to mean any reduction or elimination of your student loan balances (whether principal or interest), which includes cancellation and discharges.

In general, there are three types of student loan forgiveness programs.

  1. Income-driven repayment: These programs limit your monthly payments to a percentage of your discretionary income, then forgive your remaining balance after a couple of decades or so.
  2. Profession-driven forgiveness: These programs can take several different forms and are sponsored by many different parties, but they all require you to work in a certain profession for some amount of years.
  3. Circumstantial discharges: In some extreme circumstances (like disability, death, or school closure) you might have part or all of your loans canceled or discharged.

Keep in mind that these aren’t official terms, but they help you categorize and understand the options available to you.

1. Income-Driven Repayment Programs

As we mentioned above, income-driven forgiveness programs adjust your monthly payments down to a set percentage of your discretionary income. After you’ve paid on time for a certain number of years, they’ll forgive your remaining balance.

The percentage of your discretionary income, the number of years you have to make payments, and the type of loans that qualify all depend on the program, but you can apply for all of them in the same place free of charge.

All of them require that you not be in default, plus each one also has some additional unique requirements.

Income-Contingent Repayment (ICR)

The ICR plan lowers your monthly payment down to the lesser of 20% of your discretionary income and what you’d pay over a hypothetical fixed 12-year term. After 25 years of these payments, your balance will be forgiven.

It’s the most inclusive of the income-driven methods, with all of the following federal student loans being considered eligible:

  • Direct loans (subsidized or unsubsidized)
  • Direct PLUS loans made to graduate or professional students
  • Direct Consolidation Loans

While the following loans are not eligible on their own, they will qualify after you consolidate them into a Direct Consolidation Loan:

  • Direct PLUS Loans made to parents (this is the only program that does so)
  • Federal Stafford Loans (subsidized and unsubsidized)
  • FEEL PLUS Loans to grad students and parents
  • FEEL Consolidation loans
  • Federal Perkins Loans

Income-Based Repayment (IBR)

The IBR plan lowers your monthly payment to just 15% (10% if you’re a new borrower) of your discretionary income, and you’ll be forgiven after 25 years (20 if you borrowed after July 1, 2014). 

Additionally, your payments have to be less than what you’d pay under the standard repayment plan (the default option for all federal student loan borrowers).

To qualify for the IBR plan, you’ll have to hold one of the following loans:

  • Direct Loans (subsidized or not)
  • Direct PLUS Loans made to graduate students
  • Direct Consolidation Loans that did not repay any PLUS loans made to parents
  • Federal Stafford Loans (Subsidized or not)
  • FFEL PLUS Loans made to graduate students
  • FFEL Consolidation Loans that did not repay any PLUS loans made to parents

Federal Perkins Loans are also eligible once they’ve been consolidated into a Direct Consolidation Loan.

Pay As You Earn (PAYE)

The PAYE plan reduces your monthly payment even further, down to just 10% of your discretionary income (as long as it’s not more than the 10-year Standard Repayment Plan amount), and grants you forgiveness after just 20 years.

However, you’ll have to be a new borrower and hold one of the following eligible loans to qualify:

  • Direct Loans (subsidized or not)
  • Direct PLUS Loans made to graduate students
  • Direct Consolidation Loans that did not repay any PLUS Loans made to parents

Like the other plans, some loans are eligible once consolidated into a Direct Consolidation Loan:

  • FFEL PLUS Loans made to graduate or professional students
  • FFEL Consolidation Loans that did not repay any PLUS loans made to parents
  • Federal Perkins Loans
  • Federal Stafford Loans (Subsidized or not)
  • FFEL PLUS Loans made to graduate or professional students
  • FFEL Consolidation Loans that did not repay any PLUS loans made to parents

Revised Pay As You Earn (REPAYE)

Finally, there is the REPAYE Plan, which reduces payments to 10% without requiring that the amount be less than your Standard Repayment Plan amount.

For undergraduate loans, you’ll receive forgiveness in 20 years, though it’s 25 years if any of the loans you’re repaying were originally taken out for graduate or professional education. 

The following loans are eligible on their own:

  • Direct Loans (Subsidized or not)
  • Direct PLUS Loans made to graduate or professional students
  • Direct Consolidation Loans that did not repay any PLUS loans made to parents

And again, the following loans are eligible when consolidated:

  • Federal Stafford Loans (Subsidized or not)
  • FFEL PLUS Loans made to graduate or professional students
  • FFEL Consolidation Loans that did not repay any PLUS loans made to parents
  • Federal Perkins Loans

2. Employment-based forgiveness

Employment-based programs are a much less well-defined group than income-driven plans. They have less in common with each other, but they all include in their requirements that you work in some specific professional capacity.

Both the federal and state governments offer these programs, and while they’ll usually get you out of debt faster than income-driven loans, they’ll also do less to reduce your payments in the meantime. They’re also usually less flexible and include a narrower range of federal loans.

Loan Repayment Assistance Programs (LRAP)

There are dozens of different LRAPs in every state that cater to a wide range of professions, including:

  • Doctors
  • Pharmacists
  • Dentists
  • Lawyers
  • Teachers
  • Nurses

While these are the most common options available, it’s not a hard rule. There are options for many other career paths as well.

Generally, these programs don’t function like loan forgiveness in the traditional sense. They’re often more like scholarships that help you repay your debts up to a certain amount each year if you meet certain requirements.

Unfortunately, there aren’t any universal requirements to point to for these programs either. Different parties sponsor them in each state for various professionals, but that means you can probably find one to suit your needs and background.

Public Service

For public service workers, there are two primary paths to loan forgiveness.

First, there is the Public Service Loan Forgiveness Program (PSLF). Here are the details:

  • You’ll receive 100% loan forgiveness with no limit
  • You have to make 120 payments on a qualifying repayment plan (any of the income-driven plans we talked about before or the standard repayment plan)

The list of people who qualify as a “public service” worker includes anyone employed by a government agency or a 501(c)(3) organization (excluding religious-based nonprofits).

For the PSFL, your career choice means less than your employer choice, though qualifying employers tend to be in certain fields (teachers, nurses, 

All direct loans qualify (subsidized or not), including PLUS and consolidation loans. Federal Perkins Loans and FFEL loans are eligible as well, once you’ve consolidated them.

The only other thing you need to do to apply is to fill out the Employment Certification Form every year and whenever you change jobs. If you keep up to date with them, you’ll eventually be notified once you qualify for forgiveness.

public-service-student-loan-forgiveness

The second option is the Federal Perkins Loan Cancellation program, which can eliminate up to 100% of your outstanding balance if you work in public service for five years.

The program forgives a percentage of your loans incrementally every year, so you can get a partial benefit even if you leave before the fifth year.

Again, you’ll need to work in public services to qualify and, of course, it’s only accessible with Perkins loans. So you’ll need to use other methods if you have different loan types.

To apply, you’ll have to consult with either the school that made the loan or their Perkins loan servicer.

Nurses

There are several options for loan assistance for nurses in addition to Public Service Loan Forgiveness for Direct Loans and Perkins loan forgiveness for Perkins loans. 

  • The Nurse Corps Loan Repayment program pays up to 85% of unpaid nursing education debt for qualifying nurses who work in a critical shortage facility or eligible nursing school.
  • The National Health Service Corps Loan Repayment program offers repayment of student loans in exchange for 2 years of full- or half-time service as a healthcare provider in a NHSC approved site (up to $25,000 for half-time service or $50,000 for full-time service), with the option to continue in the program and earn additional assistance up to full repayment of all student loans. NHSC-approved sites are generally outpatient facilities providing primary medical, dental, and/or mental and behavioral health services. For more information about qualifying sites, click here
  • Other programs from the National Health Service Corps assist providers who work in substance use disorder care,  qualifying rural communities, or Indian Health Service facilities. Refer to the NHSC loan repayment comparison page for help finding the repayment program that is right for you. 

Doctors and other healthcare professionals

In addition to potentially qualifying for Perkins Loan Forgiveness or Public Service Loan Forgiveness, doctors and other healthcare professionals have additional loan repayment options:

  • Healthcare providers may be eligible for loan forgiveness through the National Health Service Corps.To qualify, providers must meet certain criteria, including providing medical, dental, or behavioral and mental health services at an NHSC-approved site. NHSC-approved sites are generally outpatient facilities providing primary medical, dental, and/or mental and behavioral health services. For more information about qualifying sites, click here.
  • Other programs from the National Health Service Corps include specific providers who work in substance use disorder care, qualifying rural communitiesIndian Health Service facilities, or — if you are a student in your last year of medical school training — in any of a range of health professional shortage areas. Refer to the NHSC loan repayment comparison page for help identifying the type of repayment program that might be right for you. 
  • Many states offer student loan repayment options for doctors and healthcare providers. Check the Association of American Medical Colleges’ database of state forgiveness programs that may be available to you. 
  • The National Institute of Health offers student loan forgiveness for medical doctors with qualifying degrees who commit to biomedical or biobehavioral research careers. The NIH will pay up to $50,000 annually of a researcher’s qualified educational debt in return for a commitment to research the organization prioritizes. 

Teachers

Teachers can seek forgiveness under both PSFL and Federal Perkins Loan Cancellation, but they also have a forgiveness option that is unique to them that’s called (a little uncreatively) Teacher Loan Forgiveness.

If you meet the requirements for the program, you may be eligible for up to $17,500 in loan forgiveness. Here’s what you’ll need to qualify:

  • Employment as a full-time teacher for five complete and consecutive years (with at least one year after 1997-98)
  • Work at an elementary, secondary, or educational service agency that serves low-income students
  • Be considered a highly qualified teacher. That means that you attained at least a bachelor’s degree, received full state certification as a teacher, and have not had any certification or licensure requirements waived
  • The loan(s) for which you are seeking forgiveness must have been made before the end of your five academic years of qualifying teaching service.

The forgiveness is only applicable for Direct and Federal Stafford Loans (Subsidized or not in both cases).

Lawyers

Like other professions, lawyers may qualify for Perkins Loan Forgiveness or Public Service Loan Forgiveness. However, many other profession-specific loan assistance options exist for attorneys:

  • Through the Attorney Student Loan Assistance Program, the Department of Justice offers loan repayment assistance for attorneys who commit to work for them for three years. The DOJ requires attorneys to have a balance of at least $10,000 in student loan debt to qualify, and they match the qualifying attorney’s loan payments up to $6,000 
  • The John R. Justice Foundation offers grants to public defenders and other qualifying attorneys. Grantees receive funds to use towards outstanding student loans. 
  • The Herbert S. Garten Loan Repayment Assistance Program provides grants to attorneys selected through a lottery system. 
  • The Loan Repayment Assistance Program provides forgivable loans to attorneys in low-paying public-interest sectors. Attorneys can use these funds to pay off their loans, and the balance on the loans is forgiven once the required service term ends.

Military

Those who serve in the military can also qualify for Perkins Loan Forgiveness or Public Service Loan Forgiveness. In addition, the following programs provide opportunities for assistance on student loan repayment or those serving in the military.

  • The Army’s College Loan Repayment Program offers to pay up to ⅓ of of the outstanding principal balance, less taxes of the Soldier’s student loans annually (or $1,500, whichever is greater) after each year of service up to three years total (up to $65,000, less taxes). This program is available for newly enlisting soldiers who are specified Military Occupational Specialties. Full time members of the Army National Guard or Army Reserves can qualify, too, but the requirements and payout amounts can vary. The Navy and Air Force run  similar programs, paying up to $65,000 over 3 years to qualifying service members who enlist. 
  • The Army also provides loan assistance for officers in the U.S. Army Medical Department. They offer up to $120,000 over 3 years towards student loans for doctors, dentists, and physician’s assistants. Even those in the Army Reserves qualify for a portion of this benefit. 
  • For those holding Perkins loans, the National Defense Student Loan Discharge program for those who served in “hostile-fire” or “imminent-danger” locations. This program can provide discharge of up to half of the loan balance for those who completed service prior to Aug 14, 2008, or up to all of the loan balance for those who completed service after that. 
  • In addition to loan assistance or discharge, other benefits such as specific deferments and waivers may be available. The Department of Federal Student Aid provides this resource that identifies key benefits. 

3. Circumstantial Cancellation or Discharge

Finally, in some rare circumstances, you can cancel or discharge your student loans entirely.

On the bright side, these methods are usually the fastest. You won’t have to jump through too many hoops or wait decades to qualify.

But unfortunately, that’s usually because you’ve been rendered completely incapable of repaying your loan. They’re the last resort in case of some disaster and not something to hope for.

  • School closure: If your school shuts down unexpectedly for some reason, you may be able to qualify for a loan discharge. To qualify, you need to have been actively enrolled during the shutdown or to have left very recently (120 days) without receiving a degree. Reach out to your loan service to apply, but keep making payments while the request is being processed.
  • Borrower defense to repayment:  If your college defrauds you (which is a big if), then you might be able to qualify for loan forgiveness. Unfortunately, proving fraud isn’t easy, and you’ll generally need to demonstrate that they misled a large group of borrowers, including yourself.
  • Total and permanent disability: If you’ve lost the ability to work because of some mental or physical disability, you might be eligible for loan discharge. You’ll need to prove that you’re genuinely and permanently disabled. If the government later finds out that you’ve recovered, they may reinstate your loans. Visit the online application for more information, unless you’re a veteran, in which case the application and approval are automatic.
  • Death: Last but not least, federal student loans will be canceled if the borrower passes away. Even student loans taken out by a parent to pay for a child’s education will be discharged if the parent dies. To qualify, a surviving friend or family member just needs to submit a death certificate to the loan servicer.

“Obama Student Loan Forgiveness”

Obama Student Loan Forgiveness was a term adopted by companies looking to take advantage of desperate borrowers struggling to make student loan payments. While many student loan forgiveness programs existed during the Obama administration, these programs have their own rules, benefits, and qualification criteria. In general, companies calling borrowers or sending out mailers advertising Obama Student Loan Forgiveness are trying to convince borrowers to pay to enroll in what should be a free student loan forgiveness program. 

If the federal government or a state government establishes student loan forgiveness programs, they will be free for participants. Your loan servicers may be able to help you identify programs you qualify for and advise you about which might be the best fit for you, or you can do your research online and identify those programs yourself. 

Whatever you do, never pay someone to enroll you in a loan forgiveness program. Anyone asking for payment to enroll you in a free program is simply trying to exploit your student loan debt for their own benefit. 

Will Student Loans Be Forgiven?

Prior to his inauguration, President Biden announced plans to cancel up to $10,000 in student loan debt via executive order. Some, including Senate Majority Leader Chuck Shumer and 17 state attorneys general have urged him to increase the amount forgiven to $50,000, though Biden has said he will not do this via executive order.

It’s questionable whether Biden has the authority to cancel loans via executive order, and it’s likely that any executive order will be challenged in the courts. If Biden were to go through the legislature, it’s likely a bill would be shut down by Republicans in the senate.

But what about the merits of outright student loan forgiveness at the government level?

Prachi Gala PHD, Assistant Professor of Marketing at Elon University on the Student Loan Crisis

What are your thoughts on forgiving any and/or all student debt?

Paying on money is always good for consumer or the person who owes it. But from a bigger picture, the challenge is balancing the economy and the question – who will pay for it? In the end, if it is about forgiving student debt, the burden may end up being on taxpayers, who are also the people who have been forgiven those debts to some extent. Thus, the broader question remains is who is ready to take the burden from an economy perspective – the students or the taxpayers? Another question is if the student loan is forgiven from now onwards, will it be fair on those who graduated before the forgiveness policy with the huge loan. Should their loan also be forgiven or reimbursed? And what about those graduates who are earning well and can afford to pay off the debt? There are many questions to be answered and lots of criteria to consider, before a final decision can be made. 

Do you think that the media publicity surrounding the student debt crisis is warranted? Why or why not?

Coming from an international background, my experience does say that college in USA is on the expensive side of the ‘cost of education’ spectrum. Business Insider listed USA to be in the top 10 countries with most expensive education. It certainly provides the amenities and the exposure the student must get. But at the same time, the cost of the education, disappoints upcoming generations to further educate themselves. That speaks from the data that only 10% of adult population makes up for college education based on Educationdata.org. Thus, media publicity, as far as it highlights both the pros and cons of student debt and does not frame any of these benefits or disadvantages in an inappropriate manner or by distorting the truth, it is warranted. 

What are the merits and/or drawbacks behind making community college tuition free?

Community College are gaining in popularity with increasing options they can provide to students for their majors and with the ease of getting in, compared to university. But none the les, they have their own pros and cons as listed below. 

Merits: 

  1. A degree takes two years to complete (associate degree)
  2. Students can choose their own housing, increasing flexibility
  3. Class sizes are small compared to university on average
  4. More affordable than universities
  5. Admissions are easier than university because of open enrollments process
  6. More specialized in programs because of focus on specifics like healthcare

Drawbacks: 

  1. Community college offers fewer Campus activities because campuses are smaller with less amenities
  2. No dorms for students to experience their student life
  3. Campus Life is majorly missing in a community college
  4. Students will be offered an associate’s degree, not a bachelor’s degree
  5. Specialized programs reduce students’ exposure and options where students can choose from

 

While most borrowers would like to see their own loans forgiven, there is still a question of the impact on broader society. As Professor Prachi Gala of Elon University says, “the challenge is balancing the economy and the question – who will pay for it? In the end, if it is about forgiving student debt, the burden may end up being on taxpayers, who are also the people who have been forgiven those debts to some extent.”

What You Need to Watch Out For With Student Loan Forgiveness

Student loan forgiveness programs are helpful, but the industry isn’t free of danger. There are some issues that you’ll need to be conscious of, or you could land yourself in financial trouble.

Two of the biggest ones are:

  • Taxes: Loan reduction, including forgiveness, is often considered taxable income by either the state or federal government. If you’re in a 25% marginal tax bracket and have $40,000 worth of student loans forgiven in a taxable event, make sure you’re ready for the $10,000 tax bill that you’ll have to pay at the end of the year.
  • Scams: Like many other lending industries, scam artists have done their best to take advantage of the opportunity presented by borrowers who are desperate for a way out of their student loans. Make sure you watch out for red flags like private lenders offering forgiveness or the so-called Obama student loan forgiveness (since neither of those things exists).

How Do I Apply for Forgiveness Programs?

Each type of student loan forgiveness requires a different process. For some, you must enroll and recertify employment and income for the life of the loan. For others, you can simply apply when you’ve satisfied the requirements. Refer to the pages for each specific type of forgiveness to find links that will guide you through the program-specific application details. You may also check with your loan servicer for help enrolling in a loan forgiveness program. 

How Do I Apply for Student Loan Discharge?

Each type of loan discharge has its own criteria and application process. 

  • In the event of the borrower’s death, their parent or cosigner can submit proof of death to the student loan servicer,
  • For Total and Permanent Disability, borrowers may apply here.
  • For school closure discharge, borrowers may apply here
  • For discharge based on the school’s false qualification of the borrower, choose the type of falsification you’re claiming from the list here
  • For an unpaid refund discharge, complete the application here and submit it to your losn servicer. 
  • For the Borrower Defense Loan Discharge program, apply here

Federal Policy Changes and COVID-19 Exceptions

The coronavirus pandemic has only made the catastrophic student debt situation worse. As a result, Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act of 2020, which did the following for student loan borrowers: :

  • Suspended loan payments 
  • Stopped collections on defaulted loans
  • Instituted a 0% interest rate on federal loans

These measures have been extended several times, most recently by the Biden Administration on Aug. 6, 2021. The COVID-19 emergency relief measures have now been extended until Jan. 31, 2022. The Department of Education warned that there would be no further extensions and that borrowers should prepare to resume payment in February 2022.

Good news for students working towards Public Service Loan Forgiveness or an income-driven repayment plan: these months will still count towards your loan forgiveness as long as your other eligibility requirements are met. Contact your loan servicer to ensure you are doing everything you need to do to remain eligible.

Collapse of For-Profit Colleges

While for-profit colleges continue to enroll students (and at higher rates than other schools during the coronavirus pandemic), many have recently closed and, at times, left students with few options. The Department of Education has been stepping up to provide aid to students who were defrauded or left without options by for-profit colleges like Corinthian College, ITT Tech, and the Art Institute. If you attended a for-profit college that behaved in a deceitful way and/or closed while you were enrolled, you may qualify for loan discharge.

What If You Don’t Qualify for Student Loan Forgiveness?

If you don’t qualify for student loan forgiveness, there are other ways for you to manage your debts. For example, consider taking advantage of one of the following:

  • Student loan consolidation: While this won’t reduce your total loan balance, consolidating your loans can help you simplify your monthly payments and even lower them slightly.
  • Refinancing: If you’re incapable of receiving federal benefits because you hold private loans, refinancing can be a great way to lower your interest rate and save money, (especially once you’ve built up your credit score). 

Keep in mind that if your student loans are causing you difficulty despite having relatively affordable terms, it might be due to some other personal finance problem. If forgiveness isn’t an option or hasn’t helped you, try to tackle your other financial difficulties instead. Reduce your living expenses, increase your income, or work with a debt expert to help you get your finances in order.

FAQs

What is PHEAA?

PHEAA is the Pennsylvania Higher Education Assistance Agency. They are the current loan servicer for student loan borrowers working toward Public Service Loan Forgiveness and are enrolled in the PSLF program. PHEAA is ending its contract with the government, so if you’re enrolled in any PSLF program, you will have a new service provider, MOHELA.
If you’re working toward Public Service Loan Forgiveness and are enrolled in the PSLF program, you’ll have a new loan servicer this summer. Some 2 million federal student loans will be transferred in phases from FedLoan Servicing — operated by the Pennsylvania Higher Education Assistance Agency, also known as PHEAA — to the Missouri Higher Education Loan Authority, or MOHELA.
This change comes after PHEAA announced last year that it would end its contract with the government and hand federal loans over to different contractors. Some federal student loan borrowers already saw their loans transferred to Aidvantage, EdFinancial and Nelnet. MOHELA will now be managing 2 million student loans that qualify for PSLF, a program that forgives student debt for eligible teachers, firefighters, nurses and other public servants who make 120 qualifying payments.
According to Federal Student Aid, borrowers will not need to take any action on their own, and the transfers to MOHELA will continue throughout the summer.

What is MOHELA?

MOHELA is the Missouri Higher Education Loan Authority. Up to two million federal student loans are being transferred in 2022 from FedLoan Servicing (operated by PHEAA) to MOHELA, so if you receive a notification about your loans, don’t panic, it’s legitimate. According to Federal Student Aid, borrowers do not need to take any action. All MOHELA transfers will be automatic. Borrowers should receive notification both before and after their loans are transferred.

Why Am I Getting a New Student Loan Service Provider?

PHEAA, the previous servicer, has been accused of mismanaging accounts and preventing borrowers from receiving loan forgiveness. Some borrowers will now be eligible to reapply for forgiveness through a PSLF waiver.

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