Student Loan Forgiveness & Discharge

Certain career choices – teachers, nurses, government employees – make you eligible for student loan forgiveness programs. The COVID-19 pandemic also created unexpected help in repaying loans.

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The federal government doesn’t get much credit for its response to crisis situations, but student loan borrowers have good reason to salute the feds for help in repaying their $1.7 trillion debt.

The federal government created the Public Service Loan Forgiveness (PSLF) program in 2007 as a response to the ongoing crisis 45 million borrowers had repaying student loans. Borrowers who work 10 years in public service jobs – teachers, nurses, government employees, etc. – while making 120 on-time monthly payments, could have the balance of their student loans forgiven.

When the COVID-19 pandemic hit in 2020 and 30 million people, mostly Millennials, suddenly became unemployed, the feds stepped in again and suspended interest and monthly payments on federal student loans through Sept. 30, 2021. The government also ordered lenders not to report non-payment to credit reporting bureaus, so credit scores were not dinged.

Those who could afford to continue making payments, saw it applied to the principal, with none going to interest, significantly reducing debt.

So yes, there is hope that government can actually help in a crisis situation, but as with all government action, there are details that you should know or it could be a wasted opportunity.

Here’s a primer on what you need to know.

How Did COVID-19 Pandemic Affect Student Loans?

Student loan borrowers were among the first to get relief when the COVID-19 crisis crippled the U.S. economy in 2020.

On March 13, 2020, the Federal Student Aid office, acting under an executive order from President Donald Trump, suspended monthly loan payments, stopped collection on defaulted loans and reduced the interest rate to 0% on Direct, FFEL, Federal Perkins Loans and HEAL loans owned by the Department of Education.

A week later, Congress passed the CARES Act, which made all of those provisions part of the law through Sept. 30, 2020. The provisions have been extended four times and remain in effect through January 31, 2022.

What that means to borrowers is:

  • All student loans are in administrative forbearance, meaning you can defer payments without suffering a financial penalty.
  • Interest rates on federal student loans is set at 0%, meaning your balance won’t increase if you don’t make payments. Any payments you do make are immediately applied to reducing your principal. That means you should pay off your loan faster and the total cost will be far less.
  • Federal loan servicers were ordered to report monthly payments as being made to the three credit reporting bureaus, even if you accepted forbearance and chose not to make any payments. This means no negative marks on your credit report for non-payment during this period.
  • Suspended payments count toward the Public Service Loan Forgiveness programs. If you are enrolled in the PSLF program, you will receive credit for a payment each month, even if you chose not to make one.

That last bullet point is HUGE for those participating in the PSLF program. They are being credited with at least 18 months of payments (out of the 120 needed in the program) whether they made payments or not.

If the forbearance program is extended a fourth time, they could rack up even more credits that don’t cost them a dollar.

Check Out Our Guide to COVID-19 Relief

Is There More Student Loan Forgiveness Coming?

Part of President Joe Biden’s campaign pitch was that he was going to offer some sort of forgiveness to student loan borrowers, but as of April 2021, Biden hasn’t sorted that question out.

He told a February CNN Town Hall meeting that “I’m prepared to write off a $10,000 debt, but not $50,000,” but has not followed up on that with any legislative proposal.

Instead, a month later, he asked Education Secretary Miguel Cardon to prepare a report that details a president’s authority to cancel $50,000 in student loan debt without approval from Congress.

According to student loan expert Mark Kantrowitz, the $10,000 cancellation would wipe out all student loan debt for about 14.5 million borrowers. The $50,000 cancellation would erase debt for about 36 million borrowers.

One thing to be aware of is that currently, whatever amount of loan is forgiven is counted as taxable income. That may change as new legislation comes out and possibly changes loan forgiveness programs.

What Is Student Loan Forgiveness?

Student loan forgiveness means you are no longer required to make payments on the loans you used to pay for college. It’s an incentive program for those who took out more money than they can afford to repay.

Piling up student debt isn’t exactly a sin. If it were, 45 million people should head to the nearest confession booth. They have a combined $1.7 trillion in sins, er, debt.

It can’t be confessed away, but it can be forgiven. Sort of.

Forgiveness means all or part of your student loan is wiped away. Poof! But the federal government doesn’t just wave a magic wand over everyone’s debt. You must qualify for forgiveness, and that’s a challenge because, in most cases, one of the requirements is 10 years (120 months) of steady, on-time payments.

Private student loan forgiveness is even more difficult. The only way that happens is if you sustain total and permanent disability, or you die.

How To Get Your Student Loans Forgiven: Three Paths

Cancelling student loan debt is a popular subject in today’s climate, but it’s been a popular topic for more than 20 years and 45 million people still owe $1.7 trillion.

That could change if Biden and Congress reach some sort of compromise on how much to cancel and qualifying requirements.

In the meantime, option No. 1 for student loan forgiveness is having a job that serves the public good. If you’re a teacher or police officer or firefighter or social worker or health care worker or government employee who kept up with payments for 10 straight years, you’ve got a good shot. If you are a sign spinner or pet psychic, forget it.

Option No. 2 is through a repayment plan that is based on your income. You will still have to pay a large chunk of your debt over a long period, but under the current laws, a portion will be forgiven at the end.

Those options are available for federal student loans.

Option No. 3 is called a discharge and it’s available for federal or private loans, but you probably don’t want to go there. A discharge is when you can’t repay the loan for a variety of reasons, like death, disability, fraud, identity theft or bankruptcy.

Public Service Loan Forgiveness Program (PSLF)

This is Option No. 1. Congress created it in 2007 to encourage people to pursue noble careers that serve mankind and lessen student debt.

To qualify for the Public Service Loan Forgiveness program (PSLF), you must be a full-time employee (at least 30 hours per week) in a public service job. You must also make 10 years of on-time monthly payments (120 total) after consolidating your federal loans in a qualified repayment program.

This option applies solely to Direct Federal Student Loans. Private student loans are not eligible for the PSLF program.

Before we proceed, here’s a red flag: Applicants from the class of 2007 theoretically were the first ones eligible for loan forgiveness in 2017 and 99% of applications were rejected. That number has gotten slightly better with 2.4% of applications approved as of September 2020, according to the U.S. Department of Education.

Many borrowers discovered their application was rejected because they had been in an incorrect repayment plan. The Department of Education introduced its PSLF Help Tool in 2018 to try and reduce the number of rejected applications.

The PSLF Help Tool allows you to search for qualifying employers and has a series of question related to the program’s requirements that should help steer borrowers through the eligibility process.

If you are deemed ineligible because some or all of your payments were not made under a qualifying plan, you might still be eligible through Temporary Expanded Public Service Loan Forgiveness.

So, if you think you might qualify, it would pay for you to pursue forgiveness. It might eventually pay off nicely.

Public Service Jobs that Qualify for Public Service Loan Forgiveness:

Any job in a government organization at the federal, state, local or tribal level qualifies for PSLF. Working for not-for-profit organizations that are designated tax-exempt under Section 501(c)(3), also qualifies.

Other not-for-profit organizations that are not tax-exempt, but do provide a qualifying public service, such AmeriCorps and Peace Corps volunteers. The most common public service careers are in education, law enforcement, health, public law, and veterinary medicine.

If you question whether your job qualifies, use the PSLF Help Tool for answers.

Repayment Plans that Qualify for Public Service Loan Forgiveness:

There are several repayment plans that qualify under the PSLF program, including Income-Based Repayment Plan (IBR); Income-Contingent Repayment Plan (ICR); Pay As You Earn Repayment Plan (PAYE); and Revised Pay As You Earn Repayment Plan (REPAYE).

Note that the 10-year Standard Repayment Plan also is considered a qualifying plan, but because it is a 10-year plan, if you make on-time payments, there won’t be any funds left to forgive. If you plan to enroll in a PSLF program, you need to enroll in a repayment plan that extends your loan term beyond 10 years.

How to Apply for Public Service Loan Forgiveness

To apply for PSLF, you must fill out an Employment Certification Form every year and make pay stubs, W-2 forms or other documentation available as requested.

If you have met the repayment requirements, submit a PSLF application to the Department of Education. If it’s approved, the remaining balance of your loan will be forgiven.

But be aware, the whole PSLF program is in limbo until President Biden or Congress submit a plan for changing the program. It’s possible that monthly payments would also be slashed. People earning less than $25,000 a year and couples earning less than $50,000 would pay nothing toward their loans until their incomes rose above those levels.

Teacher Loan Forgiveness Program

The Teacher Loan Forgiveness program was created in 1998 to encourage teachers to take jobs at elementary schools, secondary schools and educational service agencies that serve low-income families. The U.S. Department of Education publishes the list of low-income elementary schools and secondary schools each year.

You need to teach full-time at a qualifying school for five full and consecutive years. Then you are eligible to have from $5,000 to up to $17,500 in loans forgiven.

Only direct subsidized and unsubsidized loans qualify. PLUS loans do not qualify. There are 13 states that offer some form of loan forgiveness for teachers, with varying requirements.

Apply to the program by completing the Teacher Loan Forgiveness Application and submitting it to your loan servicer.

Loan Forgiveness for Nurses

Registered nurses, nurse practitioners and members of nursing faculty, who work in high-need population areas or areas where there is a critical shortage could qualify to have up to 85% of their loans forgiven under the NURSE Corps Loan Repayment Program.

Qualified candidates can have 60% of their student loans forgiven for working two years in an underserved area. Another 25% could be forgiven for working three years.

Some states also offer loan repayment assistance. Go to the Loan Forgiveness for Nurses website to see if yours is one of the 33 states that has one and what the eligibility requirements are.

Loan Forgiveness for Doctors

The healthcare professions, especially physicians, dentists, pharmacists and mental healthcare workers, have several options, both national and local, to receive loan forgiveness.

The requirements and the amount forgiven vary dramatically, depending upon which program you enter. Check out the links to see the amount of loan forgiveness available and requirements for Army doctors; Indian Health Services, National Institute of Health, as well as state-by-state programs.

Loan Forgiveness for Lawyers

There are about a million jokes about lawyers being bloodsuckers on society, but the federal loan program begs to differ. There is a financial incentive for lawyers to practice in public service or government offices in order to have some portion of their law school loan forgiven.

For example, the Department of Justice provides up to $60,000 in loan forgiveness for lawyers who work there for at least three years. The Air Force Judge Advocate program offers up to $65,000 in loan forgiveness.

The best place to start looking might be your own law school, since several colleges forgive some or all of the student loans for students who make less than $60,000 a year.

That amount varies, so check with your school to get actual requirements and amount forgiven. If you can’t qualify for a forgiveness program, look into refinancing your law school debt.

Loan Forgiveness for Military

Each branch of the military has programs that help qualified members pay off their student loans, but the loan amounts forgiven and the requirements that must be met vary dramatically.

Visit the Complete Guide to Military Student Loan Forgiveness and Repayment and find the program that best suits your situation and branch of the military.

Federal Perkins Loan Cancellation

Federal Perkins Loans have a separate forgiveness program because your school is the lender, not the federal government. To apply, contact the financial aid office at the school that administered your Perkins Loan and request the application forms. You need to be a full-time employee in a qualified career.

Qualifying Perkins Loan Forgiveness Jobs:

  • Soldier in hostile fire or imminent danger pay areas
  • Firefighter
  • Law enforcement or corrections officer
  • Nurse or medical technician
  • VISTA or Peace Corps volunteer
  • Librarian with a master’s degree (employed by Title 1 eligible schools or public libraries that serve those schools)
  • Attorney employed in a federal public or community defender organization
  • Employee for public or nonprofit organization that serves high-risk children and their families from low-income communities
  • Staff member for educational component of the Head Start program
  • Staff member for a state-licensed or regulated pre-kindergarten or child care program
  • Professional provider of early intervention services for the disabled
  • Speech pathologist with a master’s degree (employed by Title 1 eligible schools)
  • Special education teacher for children with disabilities in public, other nonprofit schools or educational service agency
  • Teacher in a field designated by the state as teacher shortage areas (math, science, foreign language, bilingual education etc.)
  • Teacher in a designated educational service agency that serves students from low-income families
  • Faculty member at a tribal college or university

You can have up to 100% of your Perkins Loans cancelled or broken down over five years. 15% per year for the first and second year, 20% for the third and fourth years, 30% for the fifth year.

Income-Based Repayment Plan (IBR) Loan Forgiveness

The second type of loan forgiveness is based on how long you make on-time payments, under a qualifying repayment plan. You do not need to be working in a specific career field to qualify for loan forgiveness based on your repayment history.

Generally, you will make on-time payments for 20 or 25 years, depending on the repayment plan. The remaining loan balance is forgiven after that period of time. Be aware the amount forgiven is considered taxable income.

The Pay As You Earn Repayment Plan qualifies you for loan forgiveness after 20 years of on-time payments. This repayment plan will generally offer you the lowest monthly payment. To enroll in this repayment plan, you must demonstrate a financial hardship. You may remain in the program, however, after the hardship has resolved.

The Revised Pay As You Earn repayment plan is similar to the PAYE plan, only you don’t need to demonstrate financial hardship to qualify for the program.

The Income-Contingent, or Income-Based Repayment Plans qualify you for loan forgiveness after 25 years of on-time payments.

Information for applications for Income-Based Repayment can be found at StudentLoans.gov. You will need documentation on personal and financial information. Your loan servicer also can provide an application.

Forgiveness based on 20 or 25 years of on-time payments is only available to Federal Student loans. Private student loans do not qualify.

Student Loan Discharge

There’s one additional way to achieve student loan forgiveness which is called discharge. It is generally awarded by a judge and can apply to both Federal and private student loans. Discharge is granted under extremely rare circumstances.

Circumstances for Student Loan Discharge

  • Permanent disability or death
  • Victim of identity theft
  • Unauthorized signature of the loan by the school without your knowledge
  • False certification of student eligibility
  • Unpaid refund, which is when you withdrew from school and it didn’t return the required loan funds to your loan servicer
  • School closure while you were enrolled

Discharging student loans through bankruptcy is extremely rare. It is technically not impossible, but demonstrating undue hardship is very difficult. Read more about the differences between forgiveness and discharge.

Student Loan Forgiveness Alternatives

The qualifying standards for student loan forgiveness eliminates many of the 45 million borrowers, but there are other avenues to pursue that might make repaying your debt a little less challenging.

The most obvious one for federal loans is to sign up for one of the income-based programs. These programs adjust your monthly payment based on your income, so if you’re not making much, you aren’t required to pay much.

The historically low interest rates in 2020 were a prime time for borrowers to examine whether refinancing their student loans made sense. Some borrowers were able to get rates at 3% APR and that reduced their monthly payment to a manageable level. Be aware, however, that if you refinance a federal student loan, you will lose the many options federal programs offer.

If your money crunch is temporary, you can ask that your loans be deferred or place in forbearance. This allows you time to reorganize financially so you can meet monthly payment responsibilities.

About The Author

Bill Fay

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].

Sources:

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  3. N.A. (ND) 5 Things to Know About Current Repayment Flexibilities and Your Federal Student Loans. Retrieved from https://studentaid.gov/articles/5-repayment-flexibilities/
  4. N.A. (2017, January 14) 4 Loan Forgiveness Programs for Teachers. Retrieved from https://www.ed.gov/content/4-loan-forgiveness-programs-teachers
  5. Pope, A. (ND) An Essay on Criticism. Retrieved from https://www.poetryfoundation.org/articles/69379/an-essay-on-criticism
  6. Whistle, W. (2019, December 6) The Problem With Public Service Loan Forgiveness? It’s Mostly Working. Retrieved from https://www.forbes.com/sites/wesleywhistle/2019/12/06/the-problem-with-public-service-loan-forgiveness-its-mostly-working/?sh=11e34eae216c
  7. Green, E. and Cowley, S. (2019, November 28) Broken Promises and Debt Pile Up as Loan Forgiveness Goes Astray. Retrieved from https://www.nytimes.com/2019/11/28/us/politics/student-loan-forgiveness.html
  8. N.A. (ND) Student Loan Forgiveness (and Other Ways the Government Can Help You Repay Your Loans). Retrieved from https://studentaid.gov/articles/student-loan-forgiveness/