According to a recent CNBC article, 24% of millennials expect to receive forgiveness for their outstanding student loan debt balances. It’s a good thing, then, that the Consumer Financial Protection Bureau estimates that 25 percent of American workers could be eligible for student loan repayment forgiveness programs.
Here’s more good news: there are many ways of taking action to get a student loan forgiven. You can seek out programs that are career-based, meaning they provide aid for those in certain professions. Or you can look into plans based on your income level. Most of these are sponsored by the Federal government in one way or another (though some colleges do assist a select few of the students they graduate).
Those suffering the burden of student loans may qualify for one (or more) of the nine types of forgiveness programs listed below.
Public Service Student Loan Forgiveness
There are many programs available to help mitigate Federal student loan burdens — especially if you’re working in a public service position.
Specifically, employees of the government, non-profit organizations, and other public workers may qualify for the Public Service Loan Forgiveness (PSLF) program. You need to be employed full-time by a public service organization. You also are required to make 120 payments on your loans before being eligible for forgiveness.
Note that as long as you’re employed by an eligible public service organization, you’re covered. In other words, you probably qualify as a teacher — and you may also qualify if you work in a public school as an administrative staff member.
Getting a Loan Forgiven Based on Income
Another way to get Federal student loans forgiven is to see if you qualify for an income-based program.
According to Sophia Bera, CFP and founder of Gen Y Planning, there are three income-driven programs:
- Pay As You Earn Repayment Plan (PAYE Plan) – This plan is the newest option for those with student loan debt. It’s designed to help recent students entering the job market for the first time during the recession years, and provides an alternative to the Income-Based Repayment Plan and lower payments. The remaining balances will be forgiven after 20 years of qualifying payments and an interest subsidy. PAYE is only available for federal Direct Loans. Eligibility is often a result of student loans that are higher than a person’s annual discretionary income or makes up a significant portion of his or her annual income. So, $10,000 in student loans with a $60,000 annual salary would like make an individual ineligible for the plan. In addition, individuals are only eligible for the PAYE plan if:
- He or she is new borrower as of Oct. 1, 2007,
- Received a disbursement of a Direct Loan on or after Oct. 1, 2011.
- Income-Based Repayment Plan (IBR Plan) – This is the original plan that was designed to help those who held student loan debt that equaled more than their annual income, or a “significant portion” of annual income. Eligibility includes demonstrating a partial financial hardship. Loans will be forgiven after 25 years of qualifying payments, five years longer than the PAYE plan. Like the PAYE plan, this IBR also offers an interest subsidy.
Keep in mind: for both IBR and PAYE, your payments are based on your adjust gross income (AGI). If you file joint taxes with a spouse, then your AGI will include your spouse’s income and impact your payments.
- Income-Contingent Repayment Plan (ICR Plan) – This plan intends to help those who purposely chose low-income jobs but graduated with high levels of student loan debt. It provides another option for those who can’t qualify for either the Pay As You Earn Plan or the IBR Plan and is open to anyone with eligible federal student loans. Like with the IBR, the monthly payments are based on income and family size, however, the payments will likely be higher than those with IBR or PAYE. The ICR plan also forgives an outstanding balance after 25 years of qualifying payments. The debt discharged is treated as taxable income, so borrowers need to be prepared to pay taxes to the IRS.
While each of these programs has various stipulations, requirements, and limits, they all have one thing in common: they’re designed to help those with low incomes and excessive amounts of student loan debt.
They’re also a little different from the public service programs. While those in public service positions can have student loan debt forgiven after 10 years, these programs forgive loans after 20 or 25 years.
However, like the public service loan forgiveness program, these income-driven programs do require you to pay every payment on time – or you’ll be disqualified from the program. You also may need to pay taxes on the portion of your loans that are forgiven.
Use this calculator to see exactly what will happen with your payments and how much of your student loans may be forgiven.
Student Loan Forgiveness Programs for Professionals
Many student loan forgiveness programs are based on the career you choose after graduation. For those with professional degrees – think doctors, lawyers, and teachers – you have several options when it comes to shedding that student loan debt without paying it out-of-pocket and in full.
Doctors can look into the NIH Loan Repayment Program. This can help repay 25% of a doctor’s student loan balance per year with a $35,000 maximum. That’s limited to doctors conducting research and who meet certain eligibility requirements.
Lawyers can look into Equal Justice Works. This provides a list of law schools that offer loan repayment assistance programs. Afam Onyema graduated from Harvard University and Stanford Law School, and was able to decline corporate law job offers in order to establish a charitable organization thanks to repayment programs.
“I can afford to do this work only because of Stanford Law School’s uniquely generous Loan Repayment Assistance Program (LRAP),” explains Onyema. “The school is systematically paying off and forgiving 85% of my $150,000+ debt.”
Teachers can qualify for PSFL programs, they might also want to look into Teacher Loan Forgiveness. To get into this program, you need to teach at specifically designated elementary and secondary schools for five consecutive years to be eligible.
If you began teaching after 2004, you’re eligible for up to $5,000 in loan forgiveness if you were a “highly qualified” teacher, and you can receive up to $17,500 if you’re a “highly qualified” math or science teacher in a secondary school, or special education teacher.
Don’t qualify for any of the above? Don’t despair yet. You have a few more options:
Volunteer programs: These qualify under public service student loan forgiveness: Options include working with AmeriCorps and serving 12 months or volunteering as part of their VISTA program, or joining the Peace Corps.
Enrolling in the military: Some branches of the US military offer student loan forgiveness programs. Stafford and Perkins loans are eligible (among others), and the Army and Navy will “repay the maximum allowed by law for non-prior service active duty enlistments.”
The Army will pay up to $20,000 for Reserve enlistments, and that includes the Army National Guard. If you’re interested in joining the Air Force, that branch can repay up to $10,000 for non-prior service, active duty enlistments.
Both the Air Force and the Navy require a minimum of four years of service. With the Army, the minimum service is three years, and the Army and Navy Reserves and Army and National Guard require six years.
The Pitfalls Associated with Getting a Student Loan Forgiven
If you’re having trouble making your student loan payments on time and in full, it’s worth your time to do some homework and research your options. Getting a student loan forgiven isn’t always the best answer or the only solution, and you need to proceed with caution.
Let’s be clear. “Forgiveness” doesn’t mean you sit back and let someone else take care of 100% of your loan. Nor does it mean getting to completely walk away from the financial responsibilities of borrowing that money in the first place.
You’ll first need to make sure you meet all the qualifications listed out in the fine print. As we’ve seen, that can mean fitting into very specific circumstances and stipulations. And short of drastic action like declaring bankruptcy – which is not the ideal solution – you may not qualify for any of the programs on student loan forgiveness out there.
In fact, even declaring bankruptcy doesn’t always work. According to Leslie Tayne, Esq. of Tayne Law Group, P.C., “Student loans are rarely dischargeable in bankruptcy and getting a student loan forgiven is a very particular process.”
“For Federal student loans, there is a way to get your loan forgiven,” she explains. “The public service forgiveness program may forgive the balance of your loans after 10 years working in a qualified public service job.
“Once your forgiveness is approved, you will not be required to make any more payments on the loan; however it is important to note that you may be subject to a 1099 by the IRS and thus have to pay taxes on the amount forgiven.” As Tayne notes, that could have an even worse affect on your finances.
Bera provided this example: “If you had $100,000 in Federal student loans and [use a forgiveness program], after 25 years of on-time payments the balance on your student loans might be $50,000. If the government forgives this amount, you’ll have to pay the tax on $50,000 of income in addition to your normal salary or wages for that year.”
If someone only makes $40,000 annually and suddenly his or her income increases to $90,000 in a given tax year, they’ll likely owe thousands of dollars to the government.
All this isn’t said to discourage you, but to make sure you’re in tune with the realities of the situation. If you have student loans and want to look into getting involved with a student loan forgiveness program, start by familiarizing yourself with what’s available to you and your situation. Once you’ve done a bit of research you can contact your loan provider to start taking action.