What is Student Loan Forgiveness?
Student loan forgiveness is a debt relief offered to students with federal loan debts. It offers relief from the obligation to repay part or all of the federal direct loan.
With over 44 million Americans holding over $1.6 trillion in student debt, the thought of getting student loans canceled, forgiven, or discharged is a dream come true for most Americans. Once a loan is forgiven, it means that a person is no longer required to make principal and interest repayments to the federal debt.
However, not all student loans meet the requirements for forgiveness. Usually, the federal government may cancel part or all of a student loan under certain circumstances, such as performing military service, doing voluntary work, etc.
In other cases, the federal government may cancel a student debt due to circumstances beyond the borrower’s control, such as a borrower’s permanent disability, death of a borrower, falsification of loan qualifications, and closure of school during school session.
- Student loan forgiveness is a program that offers relief from the obligation to repay part or all of the federal student loan.
- Student loan beneficiaries can earn loan forgiveness through a public service program (military service, teachers, nurses, etc.) or an income-driven repayment program.
- It is available to federal student loans only, and it is not available to private loans.
How to Earn Student Loan Forgiveness
There are two main ways of earning student loan forgiveness – the Public Service Loan Forgiveness Program and the Income-Driven Repayment Forgiveness.
1. Public Service Loan Forgiveness Program (PSLF)
The Public Service Loan Forgiveness Program (PSLF) targets borrowers who work in public service jobs, either in government or in non-profit organizations.
Under the PSLF, borrowers must make at least 120 qualifying payments on time while working for a qualified employer such as a local government, state or federal government, or a non-profit with tax-exempt status.
It means that borrowers will be required to pay the minimum installments due after 10 years of monthly payments while working for a qualified employer. Some of the eligible employees may include police officers, nurses, doctors, social workers, etc., who work for qualified employers.
2. Income-Driven Repayment Service
Borrowers who do not qualify for the PSLF program may still be eligible for the Income-Driven Repayment Service. However, the latter option takes longer to get the student loan forgiven than the PSLF and can take 20 to 25 years of payment, depending on the plan.
The Income-Driven Repayment Service program can take various forms – PAYE, Revised PAYE, income-contingent repayment, and income-based loan repayment. The plans are designed for people with large student loan debts relative to their incomes, and there is no employer requirement, as is the case with the PSLF program.
Loan Forgiveness Programs
Key loan forgiveness programs in the United States include:
1. Military Student Loan Forgiveness
Military personnel serving in the National Guard, Air Force, Coast Guard, or the Army may qualify for student loan forgiveness.
Military personnel who meet the qualification can receive up to $50,000 to pay off federal loans through a Student Loan Repayment Program. There are certain terms and conditions that military personnel and veterans must meet to qualify for the program.
2. Teacher Loan Forgiveness
The Teacher Loan Forgiveness program is available to teachers who are employed full-time in public elementary or secondary schools for at least five consecutive years.
Elementary school teachers who qualify can get up to $5,000 in loan forgiveness. In contrast, secondary school teachers who teach certain subjects such as math, science, or special education can get up to $17,500 on the Federal Direct Loans or Stafford Loans.
The program is available to teachers who took out student loans after October 1, 1998.
3. Nurse Loan Forgiveness
Nurses can also access a variety of programs for loan forgiveness. For example, the NURSE Corps program is available for nurse practitioners, registered nurses, or nurse faculty members working in underserved communities. Nurses who qualify can get up to 60% of their student loans paid over two years of employment.
Some states also offer loan repayment aid to nurses. For example, nurses working in Illinois can apply for the Illinois Nurse Educator Program, which offers up to $5,000 per year for four years in loan forgiveness.
4. Doctor Loan Forgiveness
Various loan forgiveness programs are designed for doctors. The most popular programs include the National Health Service Corps (NHSC) Program and the Indian Health Services Loan Program.
NHSC is available to licensed health care providers, such as dentists, primary care doctors, and behavioral clinicians, and it awards up to $50,000 in loan forgiveness.
On the other hand, the Indian Health Services program is available to doctors who practice in American Indian and Alaska Native Communities who commit to two years of service. It offers up to $40,000 in student loan forgiveness.
Limitations of Repayment Plans
One of the limitations of student loan forgiveness programs is that the forgiven loan is taxable unless the beneficiary was required to work for a specific employer or profession to qualify for loan forgiveness.
Under the PSLF program, loan forgiveness is tax-exempt, while those under the income-driven loan repayment are subject to taxation. Furthermore, loan forgiveness is not available for defaulted federal loans.
Such loans will need to be rehabilitated or consolidated to get them in good standing to be eligible for forgiveness programs. However, defaulted loans may still be eligible for loan discharge programs.
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