The number of people with student loans has grown to over 45 million, while the total amount of student loan debt has surpassed $1.5 trillion. In comparison, credit card debt is “only” about $1.3 million.
Given the student loan figures, the desire for student loan debt forgiveness has also increased to record highs. Bernie Sander's surge in popularity in 2020 is partially due to his desire to cancel all student loan debt.
Student loan forgiveness programs usually incorporates paying off student loan debt instead of total forgiveness as some people want or people. There is also a correlation with student loan forgiveness and working in public service jobs. For example, being a public school teacher can allow for up to a certain amount of student loan debt to be forgiven or paid off.
To receive student loan forgiveness, it is almost always the case that you are in a federal employment program because the federal government is the one who wants to encourage more people to get into public service.
There are some private-sector employees who will also pay off employees’ loans as part of their recruitment and retention strategies, but private student loan forgiveness is uncommon.
Student Loan Forgiveness Basics
Student loan forgiveness isn't like winning the lottery or getting free money. In order to get student loan forgiveness, the borrower needs to follow certain rules to qualify.
Student loan forgiveness programs almost always include work and a repayment plan before there is any forgiveness.
If someone can’t make loan payments because of certain circumstances like total and permanent disability, then it would be a situation referred to as student loan discharge, which is different.
Let's look at some options for student loan debt forgiveness and how to become eligible.
Various Student Loan Forgiveness Programs
There are three types of loan forgiveness programs: 1) federal loan forgiveness, 2) state-specific loan forgiveness, and 3) profession-specific. Let's review them one-by-one.
Federal Loan Forgiveness
The Federal Loan Forgiveness program is the most common and most broadly utilized loan forgiveness program. These federal student loan forgiveness programs are focused on certain fields, including teaching, nursing, medical, and law professions.
State-Specific Loan Forgiveness
Many states offer loan forgiveness programs that work in a similar way to federal loan forgiveness programs. Requirements usually include that someone is a resident of the state for a particular amount of time, and they will usually need to work in certain careers, often within the public sector.
Think about a State-Specific Loan Forgiveness program like a reward for being a state resident who pays his or her taxes and contributes to the growth of the state. States are constantly competing for people, and a State-Specific Loan Forgiveness program is a way to lure more people to be residents.
Under state loan forgiveness programs, you may be required to work a specific type of occupation and at a certain location. For example, if it’s a state-based loan forgiveness program for teachers, the person may have to agree to work in certain underserved communities for a period of time.
Some private employers offer student loan debt forgiveness as a way to attract employees. These programs work in a way that’s similar to federal and state programs.
The typical private employer who offers a Profession-Specific Forgiveness program include tech and finance, because competition for people in these fields is fierce.
If you want to get a lower student loan interest rate, take a look at Credible. They are a leading online lending marketplace. You can get a real quote with multiple lenders competing for your business in under three minutes.
Federal and State-based Loan Forgiveness Programs
Government Loan Forgiveness Programs are the most common, which is why we'll talk about the various loan forgiveness programs they offer.
1) Public Service Loan Forgiveness
The following are key things to note about Public Service Loan Forgiveness:
- You must have made 120 qualifying monthly payments on your loans
- To qualify, the Employment Certification form has to be completed
- A qualifying loan is a non-defaulted loan received under the William D. Ford Federal Direct Loan Program
- It has to be at least 10 years after the first qualifying payment is made before someone can apply for PSLF
- Only payments made after Oct. 1, 2007, can be counted toward PSLF
The Public Service Loan Forgiveness Program (PSLF) is a federal program. This program is available to people who are employed by a not-for-profit organization or government agency. Military student loan forgiveness can be achieved through the PSLF program.
Under this program, the remaining balance on Direct Loans is forgiven after 120 qualifying monthly payments have been made under a repayment plan while the person is working for a qualifying employer. Private student loans are not eligible.
To receive forgiveness, you must pay your loans on time and your loans cannot be in default. You must also be enrolled in an income-driven repayment plan rather than a standard repayment plan.
For people who are interested in this program, they can complete their Employment Certification form and send it to FedLoan Servicing, which is the U.S. Department of Education’s loan servicer for this program.
2) Student Loan Forgiveness from an Income-Driven Repayment Plan
You can also receive student loan forgiveness after making a certain number of payments under an income-driven repayment plan. These plans limit your student loan payments to a certain percentage (usually 10%, 15%, and 20%) of your discretionary income. After 20 or 25 years of payments under this plan, your remaining balance may be forgiven.
Below is a quick breakdown of the different plans and how long they will require you to make payments for.
- Income-Based Repayment (IBR) enrolled before 7/1/14: Payments are 15% of discretionary income for 25 years.
- Income-Based Repayment (IBR) enrolled after 7/1/14: Payments are 10% of discretionary income for 20 years.
- Pay As You Earn (PAYE): Payments are 10% of discretionary income for 20 years.
- Revised Pay As You Earn (REPAYE): Payments are 10% of discretionary income for 20 years (undergrad loans) or 25 years (graduate and professional loans)
- Income-Contingent Repayment (ICR): Payments are 20% of discretionary income OR the amount you would pay on a repayment plan with a fixed payment over 12 years, adjusted to your income. Payments must be made for 25 years.
3) Teacher Loan Forgiveness
The Teacher Loan Forgiveness Program has the following features and requirements:
- You have to teach full-time for five consecutive, complete years
- To be eligible, teachers have to work in low-income schools or an educational service agency
- Loan forgiveness is available for loan amounts up to $17,500
- This program can be used on Direct Subsidized and Unsubsidized Loans as well as Subsidized and Unsubsidized Federal Stafford Loans, but not for private student loans
- At least one of the eligible academic years you worked must have been after 1997-98
To be eligible for the federal Teacher Loan Forgiveness Program, you must meet certain qualifications beyond working full-time in specific schools. For example, you must obtain at least a bachelor’s degree, and receive full state certification as a teacher. You also can’t have had your certification or licensing requirements waived for any reason.
The grade school you work at has to be listed in the Annual Directory of Designated Low-Income Schools for Teacher Cancellation Benefits, which is published by the Department of Education every year.
The maximum amount of loan forgiveness available under this program is either $5,000 or $17,500, depending on what subject area is taught. The maximum amount is available for teachers who teach mathematics or science at the secondary level or for special education teachers.
4) Perkins Loan Forgiveness
There are Federal Perkins Loan cancellation programs available based on either eligible employment or eligible volunteer service.
The following are key things to know about Federal Perkins Loan cancellation:
- There are Perkins Loan Forgiveness options for teachers of up to 100 percent of their loan if they worked full-time in a public or nonprofit elementary or secondary school system
- Many other types of employment qualify for Perkins Loan Forgiveness, including being a law enforcement officer, military service, or being a nurse or medical technician
- This program is also available for people who become public defenders or serve in AmeriCorps VISTA or the Peace Corps
- For most professions, up to 100 percent of the loan can be canceled with five years of eligible work service
The Perkins Loan Forgiveness Program is very broad and applies to many professions and even volunteer work. Unlike the Teacher Loan Forgiveness Program, you don’t have to be certified or licensed for cancellation if you are a teacher. You do have to be considered a full-time employee, however.
The amount that’s canceled each year is incremental. For example, 15 percent of loan debt can be canceled per year for the first and second years that someone works in a qualifying position. Then, for the third and fourth years, 20 percent can be canceled, and for the fifth year, 30 percent can be canceled. The canceled amounts each year include interest that accrued during that year.
Full cancellation: Under many cases, your original principal loan balance will be forgiven according to the following schedule. Note that for each year you qualify for forgiveness, any interest you accrued during that year will also be forgiven.
Student Loan Forgiveness For A Good Cause
Some might object to student loan forgiveness given most people pay back their loans in full. However, as you can see from the various student loan forgiveness programs, there are specific requirements an applicant must follow to the benefit of society before getting any student loan forgiven.
For example, having to take a $90,000 salary as a public defender lawyer for 10 years to have your $200,000 law school debt forgiven after 10 years of on-time payment might actually be a great deal for the government and for the public. The lawyer could have gone to big law and made $400,000 on average after 10 years working for big corporations.
If you have student loan debt and want to save money on interest or pay it off quicker, I suggest taking advantage of low interest rates and refinancing your student loan debt.
The best place to get real, pre-qualified, competitive student loan rates is through Credible. They are a leading online lending marketplace. You can get a real quote with multiple lenders competing for your business in under three minutes.