Student loan forgiveness programs - Federal Student Aid Student loans forgiven

Table of Contents

Forgiveness, cancellation, or discharge of your loan means that you are no longer required to repay some or all of your loan.

What are the differences between forgiveness, cancellation, and discharge
When can my federal student loans be forgiven, canceled, or discharged
How do I apply to have my loan forgiven, canceled, or discharged
Do I need to make payments while my forgiveness, cancellation, or discharge application is being reviewed
What happens if my application is approved
What happens if my application for loan forgiveness, cancellation, or discharge is denied
I’m a parent who took a PLUS loan to help pay for my child’s education. Can my loan ever be forgiven, canceled, or discharged

What are the differences between forgiveness, cancellation, and discharge

The terms forgiveness, cancellation, and discharge mean the same thing, but they’re used in different ways. If you’re no longer required to make payments on your loans due to your job, this is generally called forgiveness or cancellation. If you’re no longer required to make payments on your loans due to other circumstances, such as a total and permanent disability or the closure of the school where you received your loans, this is generally called discharge.

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When can my federal student loans be forgiven, canceled, or discharged

You must repay your loans even if you don’t complete your education, can’t find a job related to your program of study, or are unhappy with the education you paid for with your loan. You also can’t claim that you have no responsibility for repaying your loan because you were a minor (under the age of 18) when you signed your promissory note or received the loan. However, certain circumstances might lead to your loans being forgiven, canceled, or discharged.

The list below is a quick view of the types of forgiveness, cancellation, and discharge available for the different types of federal student loans.

*FFEL Program loans and Perkins Loans may become eligible for Public Service Loan Forgiveness if they are consolidated into the Direct Loan Program.

In addition to the types of forgiveness, cancellation, and discharge shown above, you may also be eligible for discharge of your federal student loans based on borrower defense to repayment if you took out the loans to attend a school that misled you, or engaged in other misconduct in violation of certain state laws, and if the school’s act or omission directly related to your federal student loans or to the educational services that you paid for with the loans.

Direct Loan Program and FFEL Program False Certification of Student Eligibility or Unauthorized Signature/Unauthorized Payment Discharge

You may be eligible for a discharge of your Direct Loan or FFEL Program loan in these circumstances:

Contact your loan servicer for more information. If you don’t know who your loan servicer is, visit "My Federal Student Aid parent plus loan forgiveness"

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Student loan forgiveness programs - Federal Student Aid

Advertiser Disclosure

Student loan forgiveness might seem too good to be true, but there are legitimate ways to get it through free government programs.

The following options are available only to borrowers with federal student loans. Some programs have very specific requirements that make them difficult to qualify for, but income-driven repayment plans are open to most borrowers.

» MORE: How to get loan forgiveness through borrower defense to repayment

You’re not eligible for federal student loan forgiveness programs if you have private loans, but there are other strategies for managing private loan debt.

Student loan forgiveness programs

Income-driven repayment forgiveness The federal government offers four main income-driven repayment plans, which allow you to cap your loan payments at a percentage of your monthly income. When enrolled in one of these plans, your remaining loan balance will be eligible for forgiveness after 20 or 25 years, depending on the plan. These plans are most beneficial for those with large loan balances relative to their income.

» MORE: Income-based repayment: Is it right for you

Public Service Loan Forgiveness Public Service Loan Forgiveness is available to government and qualifying nonprofit employees with federal student loans. Eligible borrowers can have their remaining loan balance forgiven tax-free after making 120 qualifying loan payments. In order to benefit from PSLF, you’ll need to make payments while enrolled in an income-driven repayment plan. Otherwise, on a standard repayment plan, the loan would be paid off before you’re eligible to benefit from forgiveness.

» MORE: How to get Public Service Loan Forgiveness.

Teachers employed full time in low-income public elementary or secondary schools may be eligible for forgiveness after working for five consecutive years. They can have up to $17,500 in federal direct or Stafford loans forgiven. To qualify, teachers must have taken out loans after Oct. 1, 1998.

» MORE: How teachers can get student loan forgiveness

Student loan forgiveness for nurses Nurses shouldering student debt have several options for student loan forgiveness: Public Service Loan Forgiveness, Perkins loan cancellation, and the NURSE Corps Loan Repayment Program, which pays up to 85% of qualified nurses’ unpaid college debt. Public Service Loan Forgiveness may be the mostly likely option for most nurses — few borrowers have Perkins loans, and the NURSE Corps program is highly competitive.

» MORE: 3 student loan forgiveness options for nurses

Obama student loan forgiveness There’s no such thing as “Obama student loan forgiveness.” However, some student “debt relief” companies use it as a catch-all term for free federal programs — which they charge to enroll borrowers in. If you encounter a company offering “Obama student loan forgiveness,” consider it a red flag. Enrolling in federal programs like income-based repayment and federal student loan consolidation is free to do on your own through the Department of Education.

» MORE: Steer clear of ‘Obama student loan forgiveness’

Other student loan forgiveness programs There are a few additional niche student loan forgiveness or payment assistance programs you may qualify for through federal or state programs. Eligibility in these programs depends on your profession and where you work parent plus loan login

Student loan forgiveness can come with a tax bomb - CNBC

It's estimated that roughly 50% of student loan borrowers qualify for some type of student loan forgiveness program.  But this statistic is misleading, because a lot of borrowers think this means qualifying for some type of student loan forgiveness program.  That's wrong.

Actually, most borrowers qualify for student loan forgiveness through one of these "secret" ways.  The secret is simple: sign up for a qualifying student loan repayment plan, and any remaining balance on your loan will be forgiven at the end of the plan.

It's that simple.  What's even better is that your income could be low enough to qualify for zero or minimal repayment, at which your loan will be forgiven at the end. Yes, there may be tax consequences, but that shouldn't deter you from these programs. It is the best alternative if you can't afford your loans and you are looking for forgiveness options (and we discuss the taxes a bit at the end of the article).

If you're not quite sure where to start or what to do, consider hiring a CFA to help you with your student loans. We recommend The Student Loan Planner to help you put together a solid financial plan for your student loan debt. Check out The Student Loan Planner here.

Here are the student loan repayment plans that qualify for student loan forgiveness:

The Income Based Repayment Plan (IBR) is one of the most common repayment plans borrowers switch to if they are having financial hardship.  If you have loans from before July 1, 2014, you payment will not be higher than 15% of your discretionary income.  On this plan, you will make payments for 25 years, and at that point, your loans will be forgiven.

If you are a borrower with loans after July 1, 2014, your loan will not exceed 10% of your discretionary income, and the loan will be forgiven after just 20 years.

With IBR, you loan repayment will never exceed the payment of the 10 year standard repayment plan, and your loan will also be forgiven at the end of the term.

The actual amount of your "discretionary income" is determined by a formula based on your family size and income tax returns.  Check out our Discretionary Income Calculator to find out what your discretionary income would be.

2. Pay As You Earn Repayment Plan (PAYE)

The Pay As You Earn Repayment Plan (PAYE) is very similar to the IBR Plan.  With PAYE, you will not pay more than 10% of your discretionary income, and your loan will also be forgiven after 20 years. This program is also sometimes referred to as Obama Student Loan Forgiveness.

The key difference is that certain loans going back to 2007 qualify for this plan.

With PAYE, you loan repayment will never exceed the payment of the 10 year standard repayment plan, and your loan will also be forgiven at the end of the term.

For both IBR and PAYE, it might make sense to file your tax return married filing separately to qualify.

3. Revised Pay As You Earn Repayment Plan (RePAYE)

RePAYE is a modified version of PAYE that has become available to borrowers after December 17, 2015. Unlike PAYE, which was available for loans taken out after 2007, RePAYE is open to all Direct Loan Borrowers, regardless of when the loan was taken out. The repayment plan still caps your payment at 10% of your discretionary income, and the loan will be forgiven after 20 years.

The RePAYE plan also includes an interest subsidy that would help cover 50% of the interest in cases where the new payments cannot keep up with the accruing interest.

You can learn more about how RePAYE is helping borrowers here.

4. Income Contingent Repayment Plan (ICR)

The Income Contingent Repayment Plan (ICR) is a little different than IBR or PAYE.  There are no initial income requirements for ICR, and any eligible buyer may make payments under this plan.  Under this plan, your payments will be the lesser of the following:

With the ICR plan, your loans will be forgiven at the end of 25 years.

It's important to note that with this plan, your payments could end up being higher than the standard 10 year repayment plan. Since you have to submit your income every year, if your income rises high enough, your payment will adjust accordingly.

5. Public Service Loan Forgiveness (PSLF)

This isn't a secret, but this is one of the most popular ways to currently get loan forgiveness. It has nothing to do with your repayment plan, however, if you're smart, you'll combine IBR or PAYE with PSLF to get the maximum benefit.

A lot of people have been worried about what the future of Public Service Loan Forgiveness would be. We have a full break down of the Trump Student Loan Forgiveness Proposals that highlight the key changes. In general, loans issued before June 30, 2019 should be grandfathered in - so if you're a borrower right now, you shouldn't worry too much. 

You can learn more about Public Service Loan Forgiveness here: Top Ways To Get Student Loan Forgiveness, or you can enroll in our 15 minute program to show you how to apply. Check out the Public Service Loan Forgiveness Training.

Finally, check out our ultimate guide here: The Ultimate Guide To Public Service Loan Forgiveness (PSLF).

Tax Consequences From Student Loan Forgiveness

It's important to note that while these "secret" student loan forgiveness options could be helpful to some borrowers, for others they may result in tax consequences (see taxes and student loan forgiveness). Under current IRS rules, you may be required to pay income tax on any amount that is forgiven if you still have a remaining balance at the end of your repayment period for any of these plans.

What happens is the forgiven amount of the student loan is added to the borrowers taxable income for the year.  So, if you had $50,000 in student loans forgiven under these repayment plans, it is considered income.  If you made $35,000 working, your total income for the year would now be $85,000.  The result A higher tax bill.

However, for many borrowers, this tax bill is much more manageable than the original debt itself, so the plan makes sense.  Using a very simple example, here is what the tax bill will look like in both scenarios:

As you can see, with these repayment plans, you'll owe an additional $11,377 in Federal Income Tax in the year you do it.  However, that's cheaper than paying the original $50,000 plus interest.  Furthermore, there are options to work out a repayment plan with the IRS if you need to, which may also be helpful in your situation.

Insolvency and Forgiveness

What if you're had a huge amount of student loan debt forgiven and your tax bill is enormous This is a big concern of some people... That's where insolvency comes into play.

Insolvency happens when your total liabilities exceed the fair market value of your assets. You can also be partially insolvent if your student loan debt only partially exceeds your liabilities. 

Assets are defined as: cash, stocks, and retirement plans, real estate and ownership interest in a business or partnership. The IRS also includes assets that are difficult to value such as clothing, household items, and tools.

Liabilities include current and past-due bills, student loans (including the loans being forgiven), and business loans.

So, let's say that you have $100,000 in assets (home equity, retirement plans, etc). Let's say you have $200,000 in debt, with $100,000 in student loans being forgiven. 

So, $200,000 - $100,000 means you're $100,000 insolvent. Since the value of the student loans being forgiven is $100,000 - none of it will be included on your taxes and will not count towards your taxable income. 

This can really help borrowers who are worried about large amounts of taxable income from having their student loans forgiven. 

We have a full article on Insolvency and Student Loan Forgiveness here.

A Reminder About Private Student Loans

Remember, private student loans don't offer any type of forgiveness program - even "secret" ones like we mention above. If you're struggling with your private student loans, consider refinancing them to take advantage of a lower interest rate or payment structure.

We recommend using a service like Credible, which allows you to see what you qualify for in less than 2 minutes, and compares student loans at dozens of lenders. Check out Credible today to see if you can save money on your private student loans. As a bonus, College Investor readers will get a $200 bonus when they refinance with Credible!

You can also submit your info here: Credible Refinancing.

If you're not quite sure where to start or what to do, consider hiring a CFA to help you with your student loans. We recommend The Student Loan Planner to help you put together a solid financial plan for your student loan debt. Check out The Student Loan Planner here.

Want to know more about PAYE or IBR Continue the conversation with us in our new Student Loan Debt Forums suntrust auto loan payment

Are you taking advantage of these "secret" student loan forgiveness strategies

6 Ways to Get Your Student Loans Forgiven -- The Motley Fool

As the cost of a college education continues to rise, student loans become both more necessary and more burdensome. A study by One Wisconsin Institute revealed that on average, a graduate with a bachelor's degree will take 21 years to repay their student loans -- and the repayment period is even longer for those holding advanced degrees. If you'd like some help getting rid of your own student loan debt, consider taking part in one of these student loan forgiveness programs.

Teacher loan forgiveness

The Department of Education wants to encourage people to become teachers in schools serving low-income families, and it's willing to reimburse such teachers by forgiving some or all of their student loans. If you teach full-time for five consecutive years at an eligible school, you can get up to $17,500 worth of federal student loans forgiven. And unlike some student loan forgiveness programs, you won't be required to pay income tax on the canceled debt, which could save you four or five figures in taxes. The Federal Student Aid website has more details, including the eligibility requirements for this program.

Image source: Getty images.

Public service loan forgiveness

If you work for a government organization or not-for-profit company, the Department of Education may reward you by canceling some or all of your student loans. You must work full-time for a qualifying organization and make at least 120 monthly payments on your federal student loans. After the 120th payment, assuming you meet all the requirements, the Department of Education will forgive any remaining balance on your federal loans. As with the teacher loan forgiveness program, the canceled debt is tax-free. See the Federal Student Aid website to find out how to qualify for this program.

Volunteer

AmeriCorps and the Peace Corps both have loan forgiveness programs to help out their volunteers. If you serve in AmeriCorps for at least 12 months, you can receive up to $7,400 in stipends and $4,725 to repay your student loans. Meanwhile, the Peace Corps will allow you to defer your federal student loans and cancel up to 70% of your Perkins Loans. Note that the debt these programs repay for you is considered taxable income, so although they may save you thousands, you'll still be responsible for the resulting tax bill. 

Become a legal aid attorney

If you thought college was expensive, try pricing law school. Newly graduated lawyers can carry crushing student loan debts of $150,000 or more. However, 24 different states have loan repayment programs to help lawyers doing public service work in various fields. If you are a lawyer and happen to live in one of those states, consider becoming a public defender or joining the district attorney's office for a few years to help get your student loan debt under control. You'll likely have to pay income tax on the canceled debt -- check with the program sponsor for your state to confirm.

Move to a rural area

Some parts of the country, particularly rural areas, are so desperate for new residents that they'll gladly reimburse people for moving there -- often through student loan repayment programs. For example, Kansas has 77 counties that qualify as Rural Opportunity Zones. If you have a college degree and move to one of those counties, you can get up to $15,000 worth of student loans repaid by the county. As a bonus, you also get your Kansas state income tax waived for up to five years. Other states with excellent student loan forgiveness programs include California (for qualified health professionals serving in rural parts of the state), Alaska (also for health professionals, including pharmacists, nurses, dentists, and more), and North Dakota (for veterinarians in high-need areas). Any state loan repayment programs designed to increase healthcare availability offer tax-free debt cancellation for the borrower, but non-medical programs, such as Kansas' program, will not spare you the income tax bill. 

Serve in the Army

Not only does military service typically count toward the public service loan forgiveness program, but the Army also has a few student loan forgiveness programs of its own. Serve for three years and you can get up to $65,000 worth of loans forgiven. Lawyers can get the same deal by serving for three years in the Judge Advocate General (JAG) Corps. Even certain civilian employees qualify for student loan forgiveness. Sadly, all of these loan repayments are considered taxable income for the borrower.

Other options

If you're struggling to pay your student loans but can't qualify for any of the student loan forgiveness options in time, you might request a forbearance. This allows you to temporarily suspend your student loan payments so that you have a chance to resolve your financial issues. You'll still be required to pay the interest, but that's typically a small amount. See the General Forbearance Request form (link opens PDF) for information on how to apply calculate loan payoff  

Studentdebtadvocates.org

The Consumer Financial Protection Bureau estimates that one-fourth of the American workforce may be eligible for repayment or loan-forgiveness programs, the Associated Press reported last month.

If you just don't think about them, they're not real­ -- right

That's how many students tend to think about the thousands or -- in extreme cases -- hundreds of thousands of dollars they borrow in student loans over the course of their higher education.

After graduation, most students are entitled to one six-month "grace period" to get a job before they must start their federal loan payments, according to the National Student Loan Data System for Students.

But when time's up, reality sinks in -- and fast.

The Consumer Financial Protection Bureau, however, estimates that one-fourth of the American workforce may be eligible for repayment or loan-forgiveness programs, the Associated Press reported last month.

GLOSSARY: Key student loan words and terms explained

Figuring out which loan forgiveness programs you qualify for can require some legwork, but you could be surprised by the number of options, says Betsy Mayotte, director of regulatory compliance at Saltmoney.org, an organization that authored "60 ways to get rid of your student loans (without paying them)".

"When we counsel people, what we get all the time is that people don't know all these options exist, these lower payments, these programs," Mayotte says. "They think it's either you pay (your student loans), or you get in trouble. And it's just not like that."

Many humanitarian and public-sector jobs are eligible for loan forgiveness, Mayotte says, so that "borrowers can follow their passions instead of their bills." That way, someone who wants to be a public defender, for example, will not be deterred by an expensive law degree.

Of course, there is no way to escape student loan debt scot-free, as many federal programs require qualifications, research and lots of fine print. But doing your homework can pay off, Mayotte says.

RELATED: Average debt up again for recent college grads

What's the first step Simply talk to your loan provider, Mayotte says. Loan providers are very familiar with federal programs and will be able to help borrowers determine which programs make sense for their circumstances.

Below are four ways borrowers can have their federal student loans forgiven through a variety of government programs.

1. Become a public school teacher in a low-income area.

Thanks to the government's Teacher Forgiveness Program, up to $17,500 of your federal Stafford loans or the entirety of your Perkins loans can be forgiven in exchange for five consecutive, full-time years as a teacher at certain low-income elementary or secondary schools.

From the Army to the National Guard, each branch of the military has its own student loan forgiveness program. Forgiven loan amounts usually depend on the level of rank achieved. Those interested should contact their preferred branch to learn about their options, Mayotte suggested.

3. Apply for the Income-Based Repayment Plan.

Just about everyone should consider applying for the Income-Based Repayment Plan, Mayotte says. The program adjusts students' monthly loan payments to be no more than 15% of their "discretionary" income (the amount of money they make that falls above the federal poverty level).

Take, for example, a recent grad who makes $20,000. Because the federal income level within the contiguous United States is $11,490, that means he only makes $8,510 in discretionary income. Under the IBR, he would only have to make payments that were 15% of that $8,510, which equals about $106 a month.

It's entirely possible, Maylotte says, that some recent graduates make so little that they qualify to make $0 payments.

After 25 years of making these adjusted loan payments, the borrower's remaining balance is completely forgiven.

4. Get a public service, government or non-profit job.

Those who borrowed money under the William D. Ford Federal Direct Loan program can apply to the Public Service Loan Forgiveness Program. In this program, full-time employees in the public service or non-profit sector can have the remainder of their outstanding debt forgiven after they successfully make 120 qualified loan payments.

What kinds of jobs qualify as public service "Any employment with a federal, state or local government agency, entity, or organization or a not-for-profit organization that has been designated as tax-exempt by the Internal Revenue Service (IRS) under Section 501(c)(3) of the Internal Revenue Code (IRC)," according to the U.S. Office of Education's federal student aid website.

Some 501(c)(3) organizations that pay taxes are still included in the program, however, if they fall under a specified list of public services such as early-childhood education or public-interest law services.

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