Almost 70 percent of the 2014 graduating class from public and nonprofit colleges had student loan debt, with an average of $28,950, according to the Institute for College Access & Success. That translates to a monthly payment of more than $300 under the standard 10-year repayment plan. If that sounds familiar — and worrisome — you might be interested in the many programs to forgive that debt.
Although not everyone is a candidate for federal student loan forgiveness, you might be surprised by how many people do qualify for at least some kind of program to forgive student loans. In August 2013, the Consumer Financial Protection Bureau estimated that nearly a quarter of the workforce was in public service and eligible for some form of student loan forgiveness, including student loan forgiveness for teachers, public service loan forgiveness, student loan forgiveness for nurses and more.
Student loan relief can come in the form of:
- Lower monthly payments in order to more closely match your ability to pay
- Forgiveness of some of your student loans
- Forgiveness of all of your student loans
- A combination of lower monthly payments and forgiveness
Review the details of the four common programs so you can find out how to get federal loan forgiveness and see if you qualify to potentially save thousands of dollars.
Income-Driven Repayment Forgiveness
If your income is low compared to your federal student loan payments, one of the four available income-driven repayment plans might help ease your stress and save you some money. These plans, sometimes referred to as Obama student loan forgiveness, allow you to lower your payment to a manageable amount for a number of years, with any outstanding balance potentially forgiven. The income-driven repayment plans are:
- Revised Pay As You Earn (REPAYE) Repayment Plan
- Pay As You Earn (PAYE) Repayment Plan
- Income-Based Repayment Plan
- Income-Contingent Repayment Plan
If your payment under one of these plans would be less than your payment through a Standard Repayment Plan with a 10-year repayment period, income-driven repayment is an option available to you.
Each of these plans requires you to qualify in a slightly different way. Among the factors that are considered for eligibility are:
- Family situation
Depending on the plan, your payment will be 10 to 20 percent of your discretionary income. It’s possible for your monthly payment to be $0 with the PAYE Repayment Plan, but this is the most difficult plan to qualify for.
You will be required to pay the monthly amount for 20 to 25 years, depending on the specific plan you use. If you still owe a balance on your student loan at the end of that period, it might be forgiven. However, you might have to pay income tax on the forgiven amount.
To apply, you’ll need to fill out an Income-Driven Repayment Plan Request and provide other additional information. You can submit your application online at StudentLoans.gov. When you apply, you’ll need to provide information, like your tax returns or other financial documents, to calculate your payment. You’ll have to renew your plan each year, and your payments might change with your income — if you start earning more money, your payments might go up.
Finally, remember that by lowering your payments and extending the time you take to repay — from a standard of 10 years to 20 or 25 — it’s highly likely that you will end up paying much more in interest over the life of your loan.
Public Service Loan Forgiveness
Through this plan, the borrower’s remaining balance on their federal student loan will be forgiven if they work full time — at least 30 hours a week — for a not-for-profit or the government — federal, state, local or tribal — for 10 years. Among the many types of careers that qualify for PSLF are:
- Police officer
- Military personnel
You can also use any of the income-driven repayment plans in conjunction with this plan. That means you get all the benefits of the above plan — your payments cannot be more than 10 to 20 percent of your discretionary income — but instead of a 20- to 25-year time frame, your loans are forgiven in 10 years. You must make 120 qualifying payments to be eligible for this loan forgiveness, however.
PSLF might be a good option if you plan on a career in public service since you’ll have to still be working in public service at the end of the 10 years to qualify for the debt forgiveness. To apply, you should first call the institution that handles your loans and confirm that you and your type of loan qualify. Next, you and your employer must fill out the PLSF Employment Certificate Form and submit it to FedLoan Servicing, which controls the program.
Teacher Loan Forgiveness
If you are a full-time teacher with Direct Subsidized or Unsubsidized Loans or Subsidized and Unsubsidized Federal Stafford Loans, you could get forgiveness of your combined total up to $17,500 in five years. The program has a few requirements, including:
- Loans must be in good standing.
- Loans must have been taken out before the end of your five years of teaching.
- You must teach for five consecutive years at a qualifying low-income elementary or secondary school.
Programs to forgive your student loans are also available if you have already completed your five consecutive years or if you were unable to complete a year for certain reasons. The rules are complicated and sometimes forgive only as little as $5,000 in loan debt, so you should contact your loan servicer to see if you qualify for teacher loan forgiveness.
To apply, fill out the Teacher Loan Forgiveness Application and send it to your student loan servicer.
Perkins Loan Cancellation
If you have a Perkins student loan and work in one of many public service jobs, you could have up to 100 percent of your loan canceled. Among the career professionals who can be eligible for Perkins loan cancellation are:
- Police officers
- Those who do volunteer work with the Peace Corps
The Perkins loan cancellation program works incrementally. In other words, you get a certain percentage of your Perkins loan forgiven each year you qualify. Aside from holding a qualifying job, there are other ways you can qualify for this type of loan forgiveness, including:
- If your school closed before you could finish your studies
- If you were a serviceman in a hostile fire or imminent danger pay area
- Personal bankruptcy (in rare cases)
For this program, you must apply to through the school that made the Perkins loan, or the service provider that school has designated to handle it. Since you can borrow up to $27,500 as an undergraduate and $60,000 as a graduate student, it’s likely worth checking into this program’s details to see if you qualify.
The Bottom Line
If you have federal student loan debt and are not sure if you’re eligible for forgiveness, check into the many programs available. Although some paperwork is involved and the process might be time-consuming, getting forgiveness for some — or all — of your student loans could make a significant difference in your monthly bottom line and even save you thousands of dollars in total.