Introduction: It’s about Forgiveness AND Lower Payments
Student loan forgiveness can vary widely in both timing and the amount forgiven depending on the individual program. The good news is even with some forgiveness programs taking time; there are often ways to lower your student loan payment in less than 60 days. With so many options available, finding the right one for your specific needs can seem like a daunting task at first! This article will explain each of these programs in detail so you can see the differences and how they stack up to one another.
The Most Common Student Loan Forgiveness Programs (and Their Timing)
Here are the most common student loan forgiveness programs and their timing:
- Income-Driven Repayment Plans under the Ford Direct Loan Program: 20-25 year forgiveness.
- Teacher Loan Forgiveness and Perkins Loan Cancellation Program for Teachers: 1-5 year forgiveness.
- Public Service Loan Forgiveness: 10-year forgiveness.
- Total Permanent Disability Discharge: Immediate discharge.
- Military College Loan Repayment Program (CLRP): 4-6 year forgiveness.
This chart below shows more details on each program:
|Program||Timing||Amount Forgiven||Taxable||Eligibility Summary|
|Total and Permanent Disability Discharge||Immediate||100%||Yes||Permanently disabled|
|Perkins Loan Cancellation for Teachers||1-5 years||Up to 100% of Perkins Loans||No||For teachers at qualifying low-income schools|
|Teacher Loan Forgiveness||5 years||$5,000 or $17,500||No||For teachers at qualifying low-income schools|
|Public Service Loan Forgiveness||10 years||100%||No||Governmental and nonprofit employees|
|Income-Driven Repayment Forgiveness||20-25 years||100%||Yes||Anyone in the income-driven repayment programs|
|Military College Loan Repayment Program (CLRP)||4-6 years||Varies by branch, capped at $65,000||Yes||For those joining the military in an active duty or reserve role|
Lowering Your Monthly Student Loan Payments
While forgiveness is often the goal of many student loan borrowers, many are struggling with payments todaywhile looking for the right program. Luckily, many borrowers today are able to significantly lower their payments while working toward future loan forgiveness.
Income-Driven Repayment Plans (such as IBR, PAYE, and REPAYE), for example, have the benefit of capping your monthly loan payments at 10-15% of your discretionary income during the timeframe required before your remaining loan balances can be forgiven. These plans are an excellent way to provide both instant payment relief and a long-term solution to your student loan debts.
Summaries of the Individual Programs:
William D. Ford Direct Loan Program (known in the media as Obama Student Loan Forgiveness)
The most widely applicable student loan forgiveness option is the William D. Ford Direct Loan Program (known in the press as Obama Student Loan Forgiveness). Every direct loan in this program has forgiveness attached at the end of the term (usually 20-25 years). At the end of your consolidated loan term, any unpaid balance will be forgiven by the Department of Education. There are a variety of repayment options in the direct loan program as well as provisions which allow for early forgiveness (or principal reduction) on your consolidated loan. These options include Standard Repayment, Graduated Repayment, Income-Contingent, Income-Based Repayment, PAYE, and REPAYE.
Student Loan Forgiveness (under the Direct Loan Program) Summary:
- Must be in the Direct Loan Program to be eligible
- Takes 20-25 years depending on the borrower’s program (10 years for Public Service Loan Forgiveness)
- Total forgiveness amount is taxable
Teacher Loan Forgiveness
The Teacher Loan Forgiveness program is probably the most beneficial of all the loan forgiveness plans available. Teachers not only qualify for early forgiveness, but principal reduction as well. Teachers can be eligible for $5,000 to $17,500 in principal reduction on their loans under certain conditions.
The idea behind this principal reduction was to encourage young graduates to pursue a career in teaching. Teachers are eligible for complete loan forgiveness after 10 years of repayment. For more information, go to our Teacher Loan Forgiveness page to read more and learn how to apply.
Teacher Loan Forgiveness Summary:
- Designed for teachers in Low-Income (Title I) Schools
- Two options available: Teacher Loan Forgiveness or Teacher Cancellation for Federal Perkins Loans (see next section)
- Both are 5-year requirements
- Can have $5,000, $17,500, or 100% of your Perkins Loans are forgiven (depending on your program)
- PLUS loans are not eligible for this program
- You must not be in default on your loans
- Total forgiveness amount is NON-taxable!
There are also several different teacher forgiveness programs that vary by state. Click on any of the links below to learn about eligibility and how to apply to each program:
- New York
Teacher Cancellation for Perkins Loans
The second option for loan forgiveness for teachers is teacher cancellation for Perkins Loans. If you already have a Federal Perkins Loan, you may be eligible to have 100% of your loan amount forgiven if you meet the following criteria:
- Worked full-time in either a public/nonprofit elementary or secondary school
- Worked full-time as a Special Education Teacher with infants, toddlers, children, or those with disabilities
- Worked full-time as a teacher of certain subjects (math, science, foreign language, bilingual education, or any other subject with a current teacher shortage)
- Eligibility for forgiveness is based on the position description, not the job title
- Total forgiveness amount is NON-taxable!
To apply for teacher cancellation for Perkins Loans, simply contact the school that holds your loans and request the teacher cancellation forms from the office that handles Perkins Loans. You will be required to submit forms that show you meet the mandatory criteria for cancellation. The school itself will be responsible for the final decision of whether you are eligible for cancellation.
Once you meet the eligibility requirements, your loan amount can be forgiven up to 100% (including accrued interest) in the following 5-year timeframe:
- Year 1 of service: 15%
- Year 2 of service: 15%
- Year 3 of service: 20%
- Year 4 of service: 20%
- Year 5 of service: 30%
Perkins Loans (Additional Cancellation and Discharge Options)
Perkins Loans also have cancellation and discharge options for those who meet conditional requirements. If you meet any of the following conditions and would like to apply for cancellation or discharge on your Perkins Loan, simply contact your loan servicer or the school where your loan originated.
The following programs offer 100% forgiveness (require full-time employment):
- Borrower’s Total Permanent Disability or Death
- Closed School (before student could complete program)
- Law Enforcement or Correction Officer
- Firefighter (started on or after Aug. 18, 2008)
- Attorney (employed in a federal public or community defenders organization)
- Nurse or Medical Technician
- Speech Pathologist (Master’s Degree required)
- Librarian (conditions may apply)
- Employee of a public or nonprofit child or family services agency
- Staff member in Education Department of a Head Start Program
- Staff member of a pre-Kindergarten or state-licensed childcare program
- Qualified professional provider or early intervention services for the physically challenged/disabled
- Special Education Teacher of children with disabilities
- Teacher in an educational service agency serving low-income households
- Faculty member at a tribal college or university
- Bankruptcy for Perkins Loans (only in rare cases where court proves repayment is an undue hardship )
Here are the programs that offer partial forgiveness (50-70%):
- Service in the US Armed Forces
- VISTA or Peace Corps Volunteer
Public Service Loan Forgiveness
You may be eligible for public service loan forgiveness if you work full-time in a public service job. Under these circumstances, after making 120 payments under certain repayment plans the balance of your federal student loan would be completely forgiven. For more information, visit our Public Service Loan Forgiveness page to learn about the program and how to apply.
Public Service Loan Forgiveness Summary:
- Full forgiveness of federal student loans after 10 years (120 qualified payments)
- The is currently no limit on the forgiveness amount
- Eligibility is for government workers or those with jobs at nonprofit organizations with 501(c)(3) designation
- You must be in the direct loan program and making income-based payments
- Total forgiveness amount is NON-taxable!
- Consider consolidating your loans to ensure you are making qualified payments
Total and Permanent Disability Discharge
A borrower may be eligible for Total and Permanent Disability Discharge on their federal student loans if they are unable to engage in any substantial, gainful activity because of a physical or mental impairment. For more information, go to our Total and Permanent Disability Discharge page.
Total and Permanent Disability Discharge Summary:
- Must be permanently disabled
- Acceptable proof: SSDI or SSA award (with a 5-7 year review), doctor certification, VA documentation
- Cannot take out student loans again after utilizing this program
- Forgiveness amount is taxable because this is a cancellation of debt (insolvency exemptions may be available for some borrowers)
- Borrowers may want to consider income-based repayments instead (many qualify for $0 payments)
Military College Loan Repayment Program (CLRP):
A borrower may be eligible for the Military CLRP if they’ve already accumulated student loan debt and are considering joining the military in an active duty role, or are transitioning from active duty to the reserves. CLRP benefits are available for each branch of the military, but requirements differ by branch. To apply, simply contact your loan servicer. You can also learn more here.
Military CLRP Summary:
Must meet individual branch requirements for eligibility
- Amount forgiven varies by branch but is capped at $65,000 per individual borrower
- All accumulated interest will be the borrower’s responsibility
- Forgiveness time is 4-6 years based on individual contract
- Total forgiveness amount is taxable (in the form of a 28% reduction in total repayment from the federal government to your lender, you DO NOT have to pay this tax out of pocket as you will simply receive less total repayment credit)
Corinthian Student Loan Forgiveness
If you currently have federal student loans from one of the Corinthian schools, you may be eligible for loan forgiveness if you meet either of the following criteria:
- You attended a Corinthian school that closed on April 27, 2015
- You believe that the Corinthian school you attended made fraudulent claims or actions against you
If you are currently meet one or both of these criteria, you may be eligible for closed school loan discharge.
To be eligible for a Corinthian closed school loan discharge, you must meet the following criteria:
You did not complete your program at the Corinthian school you attended
- You have not already transferred your credits from your Corinthian school to another institution with a similar program
- You were attending the Corinthian school when it closed on April 27, 2015, or withdrew after June 20, 2014
To apply for a Corinthian student loan discharge, simply complete a Closed School Loan Discharge Application and submit it to yourloan servicer. If you have any questions, simply contact your loan servicer directly to begin the process.
Other Forgiveness Programs
Special Forgiveness Programs for Doctors by State:
- New York
Special Forgiveness Programs for Lawyers by State:
- Washington D.C.
Other Discharge Programs
Discharge is the release of a borrower from having to repay his or her loans. Based on possible extenuating circumstances, there are additional discharge options available to those that are eligible. These programs are listed below with the amounts eligible for forgiveness. You can apply for each by first contacting your loan servicer and clicking the links below to view each program’s application.
False Loan Certification (for loans received on or after Jan. 1, 1986 in which the school falsely certified that the prospective student was eligible for a loan) – 100% forgiven
False Certification from Identity Theft (loan was made as the direct result of an identity theft crime being committed, must have been proven in a court of law) – 100% forgiven
School Does Not Make Required Return of Funds to the Lender (for loans received on or after Jan. 1, 1986) – Forgiven up to the amount that the school was required to return
Private Student Loan Forgiveness
Unfortunately, those seeking forgiveness for their private student loans have much fewer options to choose from than those with federal student loans. At this point, there are no forgiveness options available similar to those with federal loans…
However, if you are currently seeking forgiveness on private student loans, here are some alternatives available to you:
Work directly with your lender – The first step should be to speak directly with you lender about options that will lower your monthly payments. In order to keep you making monthly payments, your lender may have a strong incentive to work with you regarding repayment options.
Deferment or Forbearance options – Private lenders frequently offer deferment and/or forbearance options to assist those customers struggling with their payments. Both options allow the borrower to temporarily postpone their loan payments for a certain amount of time. If you’re currently struggling with repayment due to employment and/or income issues, forbearance is likely your best option. However, keep in mind that during this time interest will still accrue.
Refinancing private student loans – Another option for those with good credit is to refinance your student loans. This option may allow you to significantly lower your interest rate, making the monthly payments much easier to make.
Federal AND Private Student Loan Forgiveness Options
If you have both federal and private student loans and are seeking forgiveness, you may be eligible to take advantage of some of the federal loan forgiveness options and then apply those savings to your private loans.
For example, you could apply for an IBR program for your federal student loans and then use the money you save to pay down your private loans that much faster. As private loans often have higher interest rates, this option can save you a lot of money in the long run!
At this time, federal student loans cannot be discharged through traditional bankruptcy courts. Any borrower who wants to have their student loans discharged through bankruptcy is required to begin an Adversary Proceeding which is a lawsuit filed as part of a bankruptcy case. The borrower must then prove that:
- They cannot meet a basic standard of living on their current income
- Their current financial situation will continue for an extended period of time
- They have made a good faith effort to repay the loan prior to filing for bankruptcy
So far, efforts by most student borrowers attempting to have their loans forgiven through bankruptcy have been largely unsuccessful as these criteria have been extremely difficult to prove. Because of this, most student borrowers attempt other options to get their loans forgiven.
To read more about bankruptcy in regards to student loans, click here.
The Risks of Forgiveness (Part 1): Tax Implications of Student Loan Forgiveness
Each student loan forgiveness program includes a different timeline and tax implication. These timelines can range from immediate forgiveness to 20-25 years, and the tax implications can vary from case to case. Given that in many cases the amount forgiven can trigger a significant tax burden, it’s critical to be aware of any tax implications before choosing a program.
However, there are options available for handling these tax implications. One option is utilizing the Insolvency Exclusion section of IRS Form 982, entitled Reduction of Taxable Assets. This option can allow you to keep the forgiven amount from being included on your Form 1040 as taxable income, thus removing the often significant tax burden of having your student loans forgiven.
Low-income borrowers may also be able to utilize the IRS Insolvency Worksheet when accounting for the forgiveness of student loans in order to keep your taxable income at $0 on your Form 1040.
Another recent development that could significantly help borrowers is The Relief For Underwater Student Borrowers Act. If implemented, this proposal would remove all future tax implications of forgiven student loan amounts. While not the law yet, given the impending (and often unforeseen) tax issues many will have, this proposal could offer significant tax relief to borrowers in the near future.
Currently, under IBR, PAYE, and REPAYE programs, amounts forgiven are treated as taxable income, and the resulting tax burdens are often substantial. This proposed legislation would remove this burden going forward.
The Risks of Forgiveness and Repayment Programs (Part 2): Recertification
With most forgiveness and repayment programs, borrowers are required to recertify their income and family size every year with their loan servicer. Your loan servicer will then use this updated information to recalculate your monthly payments accordingly. Based on this recertification, your monthly payments may increase or decrease from year to year. Borrowers are required to submit this information every year even if there are no changes.
It’s important that borrowers take responsibility to make sure this information is submitted each year as loan servicers often have a poor track record of ensuring re-certification. You are also allowed to recertify at any time if you experience a sudden change in either of these areas, such as having another child or an unexpected job loss.
Failure to recertify can have negative consequences such as an unexpected increase in your monthly payment or even disqualification in some programs. For this reason, it’s essential that every borrower ensures that their updated information is recertified each year.
Simple Glossary of Student Loan Terms:
- Consolidation – combining multiple federal or private loans into one single loan.
- Default – typically occurs after of failing to repay a loan for 270 days.
- Deferment – the postponement of repaying a loan, during which interest may or may not accrue.
- Direct Loan – a federal student loan, made through the William D. Ford Direct Loan Program, for which eligible students and parents borrow directly from the US Department of Education.
- Direct PLUS Loan for Graduates – available for graduate students or professional degree students who are in college at least half-time, where the student is responsible for interest on the loan during all periods.
- Direct PLUS Loan for Parents – available to parents who have dependent students who are enrolled at least half-time, where parents are responsible for the interest payments from the first month.
- Direct Subsidized Loan – loan to students who can prove a financial need and will be attending college at least half-time, where the student is not liable for interest on the loan while in school or during any deferment periods.
- Direct Unsubsidized Loan – loan to students who will be attending college at least half-time, no requirement to demonstrate financial need. The student is responsible for the interest payments during all periods.
- Disbursement – payment of federal student aid funds to the borrower by the school.
- Discharge – the release of a borrower from the obligation to repay a loan.
- Discretionary income – (for IBR, PAYE, and loan rehabilitation) the difference between your income and 150% of the poverty guideline for your family size and state of residence.
- Eligibility – criteria used to determine if you can receive a loan.
- Federal loan – loans made by the federal government.
- Forbearance – Period during which your monthly loan payments are temporarily suspended or reduced.
- Forgiveness – the cancellation of all or some of your remaining student loan balance.
- Grace period – The period of time after a borrower graduates, leaves school or drop below half-time enrollment where they are not required to make payments on their student loans.
- IBR (Income-Based Repayment) – A type of IDR plan that caps your monthly student loan payment at 10-15% of discretionary income.
- ICR (Income-Contingent Repayment) – A type of IDR plan that caps your monthly payment at 20% of discretionary income or what you would pay at a fixed rate for 12 years.
- IDR (Income-Driven Repayment) – student loan plans designed to cap your monthly payment based on your income.
- Interest – a loan expense charged for the use of borrowed money.
- Interest capitalization – the addition of unpaid accrued interest to the principal balance of a loan.
- PAYE (Pay As You Earn) – federal loan repayment program where payments are capped at 10% of the borrower’s income that exceeds 150%of the Federal Poverty Line.
- Perkins Loan – a federal student loan, made by the borrower’s school, for undergraduate or graduate students who can demonstrate financial need.
- PLUS Loans – a loan available to graduate students and parents of dependent undergraduate students for which the borrower is fully responsible for paying the interest regardless of the loan status.
- Principal – the total loan amount borrowed.
- Private loan – loans made by private lending institutions.
- REPAYE (Revised Pay As You Earn) – The extension of the PAYE program designed to remove previous restrictions of other IDR plans while adding some additional benefits.
- Servicer – A person or company who manages your loan on behalf of the original lender. They provide services such as collecting payments, responding to customer service inquiries and performing other administrative tasks in the maintenance of your loan.
Here are the 4 approved federal loan servicers:
FedLoan Servicing (also known as PHEAA): This company was established to directly support the US Department of Education in the servicing of federal student loans. Contact them at 1-800-699-2908.
Great Lakes: This non-profit company is dedicated to helping college students by working with both the US Department of Education and private lenders to make every step in the borrowing and repayment process easier. Contact them at 1-800-236-4300.
Navient: One of the select group of companies chosen to service student and parent federal loans by the US Department of Education. Their loan servicing department helps customers through both financial literacy tools and broad-based servicing. Contact them at 1-888-272-5543.
Nelnet: This company works with the US Department of Education in assisting borrowers through every stage of their loan’s life cycle: during school, during their grace period, and throughout repayment. Contact them at 1-888-486-4722.
Wage garnishment – the process of deducting money from an employee’s compensation, often through a court order.