For many people, the student loans they got in school become a burden a few years after college is over. But do you know that it doesn’t have to be so?
Student debts in the U.S. now affect almost 40 million Americans. Average debts are at a whopping $29,000. It’s a tough pill to swallow and one that you are obligated to pay.
That’s why student loan forgiveness is something you should know a little bit about.
What Is Student Loan Forgiveness?
Student loan forgiveness is a process by which you are released from your responsibility to pay off your student debt—either the full debt or a portion of it. Student loan forgiveness generally only applies to loans at the federal level.
Of course, wanting to get student loan forgiveness and qualifying to get it are two very different things. The reality is that you need to meet certain requirements to become eligible for student loan forgiveness.
The requirements will vary depending on the type of loan.
Qualifying for Granted Student Loan Forgiveness
To qualify for student loan forgiveness for reasons “beyond your control”, a borrower must be:
- The school has closed while they are studying
- The school has falsified the loan qualifications
- The borrower has suffered permanent disability
- Someone has falsified your identity to get the student loan
- The school failed to refund the loan to the borrower
- The death of the student loan borrower
How to Earn Student Loan Forgiveness
Generally, there are two ways for you to earn your student loan forgiveness.
Get a Job in Public Service
Getting student loan forgiveness through your work in public service falls under the Public Service Loan Forgiveness Program, also known as PSLF.
This program was created especially for individuals who are employed in public service. This covers both government jobs and jobs with non-government organizations.
To qualify, you will need to show that you have paid 120 payments towards paying off your loan. These payments will also need to have been paid while you were gainfully employed by a government entity including tax-exempt non-profit organizations.
Apply for a Payment Plan with Income Contingency
In case your work is not with a government agency or NGO, you can still apply for student loan forgiveness but through another means.
This type of plan is a long-term one as you will only be eligible for loan forgiveness after at least 20 years. Of course, the terms of the program will vary.
It must be noted that only plans through the federal government (also known as the William D. Ford Federal Direct Loan Program) are qualified for forgiveness. If your student loan is a non-federal one then you’re not qualified.
Other Specialized Programs
If you are not duly employed by the government, there are other specialized programs that you can look into that provide other means for you to get student loan forgiveness. Here are some of them.
Loan Forgiveness for Teachers
Teachers are qualified to apply for student loan forgiveness with amounts that could reach up to $5,000 to $17,000. This can be applied on either their Federal Direct Loans or Stafford loans after they have rendered five continuous years of teaching.
People who have a medical background—for example, doctors or nurses—can qualify for student loan forgiveness if they work in underserved communities. These are initiatives from the state-level so that’s where you should apply.
If you are involved as a volunteer for various programs under AmeriCorps, then you can get an amount that could reach up to $6,195 that you can use to pay off your student loans. This is implemented under the Segal AmeriCorps Education Award.
The Army National Guard has also implemented a program to help out its people. The organization has established a Student Loan Repayment Program that can provide qualified applicants up to 50 thousand dollars that can be used to pay off student loans. The loans eligible for this program are Stafford Loans, Perkins Loans, and Federal Direct Loans.
Plans with a Loan Forgiveness Component
If you are not qualified to apply for any of the specialized programs mentioned above there is still one other option.
You can apply for an income-driven repayment plan. These are loan repayment programs that have been formulated to assist people who are having difficulties in paying off their student loans.
These programs are geared towards people who are not employed by the government or the public sector.
These innovative programs are designed to have two components. First is the facility to provide monthly payments that are lower than the previous premiums for the loan. Second, the possibility of having the rest of the loan forgiven in the future.
Some of the plans to note are:
PAYE and REPAYE Programs
The PAYE (Pay As You Earn) and REPAYE (Revised Pay As You Earn) programs allow you to make monthly payments of up ten percent of your income that is classified as discretionary.
When 20 years’ worth of qualified payments are made, the remaining balance will be eligible for loan forgiveness.
As a bonus, the government itself can also help in paying a portion of the interest on the loan.
Income-Based Repayment Program
This program, also known as IBR, stipulates that you can make monthly payments of up to fifteen percent of your discretionary income. You will be eligible for loan forgiveness after you have made qualified payments for twenty-five years.
In this type of repayment plan, the monthly payment you are required to fulfill is recalculated every year. The calculations will take into account such factors as your total income, the size of your family, and the total amount of the remaining balance on your federal loan. The loan forgiveness component can take into effect after you’ve made 25 years of payments.
Federal Agency Employment
If you are employed by a federal organization, you can be provided with a loan of up to ten thousand dollars every year under the Federal Student Loan Repayment Program. You can get up to $60,000 in total, which is a huge sum that you can use to pay off your student loan.
Possible Disadvantages of Student Loan Forgiveness
While there are definite positives in getting student loan forgiveness, you should be aware that there are some downsides too. Some of these are:
Long Path to Eligibility
While the federal government and other entities provide student loan forgiveness programs. It’s not a fast method.
Oftentimes, you will be required to render years of service to the organization and an equally long number of qualified payments to be eligible for student loan forgiveness. At the very least, you’ll need to work for the organization for a minimum of 10 years just to be eligible to apply for loan forgiveness.
In other programs, you need to pay up to 25 years’ worth of qualified payments as part of the requirements for eligibility.
Your Career Can Change
As mentioned above, you need to work for at least a decade in a government organization to be eligible for loan forgiveness. For many people, that’s a particularly long time to invest for eligibility.
In that amount of time, you’ll likely find other more tempting career opportunities. Even if you tell yourself that you want a career within the government, who knows what the future will hold?
Your Total Balance Could Balloon
Part of the stipulations for loan forgiveness eligibility is that you will have to enroll in an income-driven plan. This could mean that you could lock yourself into a ten-year plan.
Because your terms of payment can then be extended up to 25 years, the extremely long time will mean that the interest rates will pile up on top of your balance.
At the end of the day, it could mean that you’ll have to pay more over the years just because you want loan forgiveness in the distant future.
Student loan forgiveness programs are a boon to many people who want to take care of their student loan debt without having to pay too much money. There are many programs out there and you’ll have to weigh which ones will be the best for you—or if it’s worth looking into it at all.
Image credit: KAROLINA GRABOWSKA