Student Loan Forgiveness

student with debtStudent debt can be overbearing, sometimes life-changing and often savings-account-crushing if you are not managing it properly. Though private student loans are a rather permanent sort of debt-recent legislation declared that individuals cannot discharge their private student loan debt through bankruptcy, much to the ire of student borrowers everywhere-there are many federal student loan forgiveness options, as well as – applicable in a select variety of circumstances, student loan forgiveness programs exist to assist student borrowers eliminate part (if not all) of their debt burden.

Understanding the Student Loan Forgiveness Act

Remember that the Student Loan Forgiveness Act only applies to federal student loans, not private student loans. Students who have taken out both federal and private loans may be able to consolidate only federal loans under this act. Those contemplating consolidating their government-sponsored student loans should go for Federal Consolidation Loans. The Student Loan Forgiveness Act makes students eligible for the 10/10 plan, which is actually an improved version of the Public Service Forgiveness program. As soon as the bill is passed, a new low-interest rate will be applied to all new loans. Those who have taken out Parent PLUS loans are eligible for loan forgiveness under the Public Service Loan Forgiveness (PSLF) program.It is important to keep in mind that the Student Loan Forgiveness Act is going to be retroactive, which means that borrowers who have paid off 10% of their loan, or have been paying for at least 10 years are going to be eligible. To prevent people from abusing this loan forgiveness opportunity, the act limits the amount that can be waived. On the other hand, federal loans continue to be protected regardless of the amount repaid, so Income-Based Repayment (IBR) or Income-Contingent Repayment (ICR) plans are also an option to consider. Federal loans can be cancelled in case of total or permanent disability of the borrower, but the new act does not offer any such relief. Before making any type of commitment, make sure to do your own research; go through the terms and conditions to make sure you know what you are getting into.

Conditions

Student loans can be forgiven under following conditions:

  • Faced with bankruptcy
  • Death of borrower
  • If you withdrew from school under certain circumstances
  • If the loan was approved incorrectly
  • If employed in public service jobs
  • If the school shuts down

Who Can Benefit

Federal student loan forgiveness is far more common than private loan forgiveness, so we will start there. President Obama recent initiative to overhaul the federal student loan system included a provision for federal student loan forgiveness. If a borrower has made regular payments on their federal student loan(s) for a minimum of 20 years, they are now automatically eligible for the new federal student loan forgiveness program that will forgive the remainder of their federal student loan debt. Certain career paths offer student loan forgiveness programs as a perk or as recognition of service on the part of an individual. For example, public school teachers, members of the armed forces, and other such positions often can qualify for loan forgiveness programs.

Public Service Loan Forgiveness

The Public Service Loan Forgiveness program is designed to assist people who obtain a degree that enables them to work in the public service sector and who choose to take a full-time job within that field. It might sound as though few people would fall into this category, but in reality, a number of common positions are considered public service jobs by the U.S. Department of Education.

People who qualify might work as:
  • Teachers
  • Soldiers
  • Paramedics
  • Social workers
  • Government workers
  • 501(c)(3) non-profit employees

The net is so cast so wide for this program, in fact, that the Consumer Financial Protection Bureau says that a quarter of all the country’s workers are engaged in jobs that would qualify for this level of assistance.

In order to participate, applicants must prove that they’ve made 120 qualifying payments during the time in which they were employed in the public service sector, and the U.S. Department of Education says that only payments made after October 1, 2007 will qualify. In addition, only federal loans are included in this program. Private loan balances remain untouched.

Proving eligibility can seem tricky and time-consuming, but those students who are able to follow the steps properly can see their remaining balances wiped away.

Options for Teachers

teacher and the Public Service Loan Forgiveness programSome teachers might qualify for the Public Service Loan Forgiveness program, but there are other options available to assist the estimated 7.2 million people who work as teachers in the United States. These professionals often graduate with a significant amount of debt, and they might need a little extra boost in order to make ends meet.

The Teacher Loan Forgiveness Program administered by the U.S. Department of Education is designed to help those teachers who serve students from low-income families. There are specific requirements involved, in order to ensure that teachers really are serving the target market, but those teachers who do qualify may be eligible to wipe away $17,500 from their direct loans after five years, according to the Department of Education.

Teachers who have Federal Perkins Loans and who work on a full-time basis for qualifying schools may be able to cancel the entire balance of their loans. The qualifications for this program can vary dramatically from state to state, however, as eligibility is dependent on the educational needs of the communities in which the teacher lives and works.

Income-Based Repayment

While most students believe that they’ll be able to handle the demands of loan repayment, low-paying jobs are common and unemployment rates are high. Some students find that they simply can’t make their federal loan payments and also attend to all of the other costs associated with modern life. Former students who can demonstrate financial hardship could qualify for an Income-Based Repayment program, in which the amount that they pay each month is tied to their discretionary income.Some students might pay off their loans with the help of this program, but those who continue to make their payments on time each and every month can be forgiven for any amount left in the loan when 25 years pass. It’s a long period of time, to be sure, but some students would be thrilled to see any amount of money taken off at all.

Other Ideas

At this point, this article has focused on loan forgiveness options that apply to people with income restrictions or people who work in public service. Thankfully, there are other options open to other types of students. These types of loan forgiveness programs often require a student to work within a specific industry, and often, there are a number of hoops for people to jump through, but the help is very real.

Nurse Corps Loan Repayment
Nurses, for example, can enroll in the Nurse Corps Loan Repayment program, which forgives 60 percent of the balance of an outstanding student loan after two years of work in a qualifying medical institution. The National Service Corps offers a similar program, but this assistance can be provided to other medical professionals, including:

  • Doctors
  • Surgeons
  • Dentists
  • Therapists

Medical professionals might also choose to work on reservations, and if they do, they might qualify for loan forgiveness through the Indian Health Service Loan Repayment Program.

Former students might also choose to give back to their communities by joining the military or heading overseas to help another country through the Peace Corps. In lieu of providing a salary, some organizations like this agree to cover the balance of outstanding student loans. Working like this could give a former student valuable experience, but it might also help to reduce debt levels.

How to get Student Loan Forgiveness

woman getting started with loan forgivenessIf you are employed in any of the manners outlined above, you should contact your employer and inquire as to whether or not you are eligible for some kind of student loan repayment or forgiveness program. Some private employers will offer student loan repayment programs where they will assist employees in paying down their student debt with matching contributions. Other companies may assist employees in covering their tuition and student debt for graduate programs, with the contingency that the student returns to the company after they obtain their degree.

Frequently Asked Questions
How do I qualify for the new federal student loan forgiveness program?There are a few ways you can qualify for the federal student loan forgiveness program. The standard way is to make regular payments on your federal student loans on a monthly basis for a period of 20 years, after which point you will have the remainder of your federal debt forgiven. However, if you pursue a career in some form of public service, whether it be as a teacher or a member of the armed forces, you will qualify for federal student loan forgiveness at a much earlier point.What is the difference between loan repayment and student loan forgiveness programs?

One of the biggest differences between these two options is that student loan forgiveness programs are sponsored by the federal government. In case of loan forgiveness, students who have federal student loans and meet certain criteria may have those loans, or a portion of them, cancelled. For example, under the new student loan forgiveness programs instituted by President Obama, students who make regular payments on their federal student loans may have the remaining balance on those loans forgiven after a period of 20 years. Individuals who participate in some sort of public service may take advantage of forgiveness sooner.

What is private loan forgiveness through consolidation?

Loan consolidation refers to combining many loans into one new loan. Consolidation allows borrowers not to worry about multiple payments each month. However, usually, federal and private loans cannot be combined. If a borrower wants to combine different loan options, he/she needs to have a solid credit history, among other requirements.

Can I qualify for the Obama student loan forgiveness plan if I’m in default?

No, you cannot qualify for the Obama student loan forgiveness plan if you have defaulted on your federal student loans.

 
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