How Does Student Loan Forgiveness Work?

Loans, Making Your Student Loans Cheaper, Student Loans

Currently, the U.S. Department of Education has paused student loan payments until August 31, 2022.[1] But, once payments restart, paying school loans may impact your ability to save for a house, build emergency funds or travel. Is there a way to have your school loans forgiven?

There are steps you can take toward student loans forgiveness. Your MoneyTips team is here to help with a rundown on what student loan forgiveness is and which programs you may qualify for.

What Is Student Loan Forgiveness, and How Does it Work? 

When any amount of your student loan debt is forgiven or canceled – and you no longer have to pay the money back – it is considered student loan forgiveness.

Under specific programs, you may have your school debt forgiven, canceled or discharged entirely after completing certain requirements or a period of on-time monthly payments. Most student loan forgiveness programs require 10 – 25 years of repayment.[2] However, student loan forgiveness does not apply to privately issued loans.

There are three ways student debt can be forgiven:

  • Participating in a federal program like Public Service Loan Forgiveness (PSLF): Student loan debt can be forgiven under PSLF if you meet certain employment and social service requirements.
  • Student loan discharge: Your loan(s) can be discharged or canceled when a school shuts down, after your death or you are determined to have a permanent and total disability.
  • An income-driven repayment program: While not complete forgiveness, you can have your loan payment amount adjusted based on your discretionary income under an income-driven repayment plan and you must make consistent payments for a set period of time. Once your loan terms are met, the remaining balance is forgiven.[3]

Public Service Loan Forgiveness overhaul

In October 2021, the U.S. Department of Education implemented a Limited PSLF waiver for federal loans that were ineligible for Public Service Loan Forgiveness – and it does not matter which program you were in.

Borrowers who complete the Limited PSLF waiver before October 31, 2022, may have their eligible payments count toward forgiveness retroactively if they worked in public service full-time for a qualifying employer.[4]

Track Your Repayment History

Keep track of your loans and repayment history by using a spreadsheet. Include the due date, the debt amount and loan servicer contact information.

What Are the Different Types of Forgiveness Programs?

There are service-based forgiveness programs and income-based repayment programs that may qualify a borrower for loan forgiveness.

Teacher Loan Forgiveness

The Teacher Loan Forgiveness Program gives to $17,500 toward Direct Subsidized and Unsubsidized Loans as well as Subsidized and Unsubsidized Federal Stafford Loans.[5]

To qualify for the Teacher Loan Forgiveness Program, you must:

  • Be a highly qualified teacher having passed a rigorous state exam or meet other licensing requirements.
  • Teach at a low-income school or educational agency.
  • Work the entire academic year, full-time – with a few exceptions.
  • Teach for five consecutive years, without any breaks in employment.
  • Have taken out your loan before your 5th year of teaching ends.

Medical forgiveness programs

There are a few medical loan forgiveness programs for doctors, nurses and other healthcare professionals.

Medical forgiveness programs may be offered by:

  • Private companies
  • Non-profit companies
  • States
  • The government
  • Through grants
  • The military

Here are a few medical forgiveness programs and an overview of their requirements.

Public Service Loan Forgiveness (PSLF)

You must work for a qualifying employer and make 10 years of on-time, consecutive qualified payments.

National Health Service Corporation (NHSC) Loan Repayment Program

This type of loan has professional license requirements, but there are no restrictions on the type of loan you need to have. While you do not have to work full-time, you must be employed in a critical-need medical facility.[6]

National Institutes of Health Loan Repayment Programs (LRPs)

If you want to enter the medical field as a researcher, this program pays up to $35,000 of your qualified student loan debt each year. You have to participate in the program for 2 years, and work in a domestic nonprofit organization or U.S. federal, state or local government entity.[7]

Nurse Corps Loan Repayment Program (NCLRP)

Up to 85% of your unpaid nursing school debt can be forgiven; however, to qualify for this program, you must be an RN or APRN and work in a critical shortage facility or an eligible nursing school recognized by the U.S. Department of Education.[8]

Military Student Loan Forgiveness for Nurses

Depending on which military branch you sign up for, you can earn anywhere from $34,000 – $50,000 in loan forgiveness.[9]

State student loan forgiveness programs

Some states offer student loan forgiveness programs for working in a certain field or for relocating to live as a permanent resident. State forgiveness programs are separate from federal student loan forgiveness programs.

Information for state student loan forgiveness programs can be found by contacting:

  • The state college or university where you took out your student loan
  • Human resources department for any potential employer you will work with
  • The chamber of commerce for the state you’re interested in

Who Is Eligible for Student Loan Forgiveness?

Each program has specific criteria that you must meet to determine your eligibility.

You may be eligible for student loan forgiveness if you have:

  • Worked in public service for 10 years: If you have worked in public service for 10 years you might be able to enroll in the public service student loan forgiveness program retroactively through the PSLF program overhaul.[4] To be enrolled in a PSLF program, you have to be employed full-time with an eligible employer.
  • Direct Loans: You have a Direct Loan, are enrolled in a qualified repayment program while working for an eligible employer and have made 120 monthly payments.[10]
  • Enrolled in a student loan forgiveness program: You are enrolled in another type of student loan repayment program such as Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), Income-Based Repayment (IBR) or Income-Contingent Repayment (ICR) plans and have met the eligibility criteria for each program.[3]

Apply to the student loan forgiveness program you qualify for, and once you’re enrolled, your application needs to be updated annually. Most student loan forgiveness programs require 10 – 25 years of participation before you can request your loan forgiveness. It’s best to enroll in a forgiveness program as soon as you are ready.

Autopay Student Loans

Contact your loan service providers to see if they offer a small percentage discount when you autopay your student loans from your checking or savings account.

Perkins Loan cancellation

If you worked in public service and received a Federal Perkins Loan after October 7, 1998, your loan may qualify for Perkins Loan cancellation.

Although this loan has been canceled as of 2017 and no new Federal Perkins loans are being made or written, people who still have this loan and qualify may get 15% – 30% canceled.[11]

To qualify for the Perkins Loan cancellation program, you must:

  • Be employed and working full-time.
  • Work as a teacher, public servant or in the nonprofit sector.
  • Find out if your volunteer or employment history is eligible for forgiveness.
Make Extra Principal Payments

Paying a little extra toward principal payments can help you repay your school loans faster.

What Is Student Loan Forgiveness vs. Discharge?

If your school made processing errors on your student loan or the school closed, then you may qualify to have your loan discharged. When a loan is discharged, you are not held responsible for the debt, and the school loan does not show up on your credit report.

You can apply for your student debt to be discharge using borrower defense if:

  • Your loans were mishandled in some way by the school you attended.
  • A type of fraud occurred.
  • You are unable to pay due to financial hardship after filing bankruptcy.
  • If the school closed before you were able to complete your training.

Once your loan is discharged, you may get a refund for any payments you made during the approval process. Discharged student debt will not show up on your credit reports.[12]

Student Loan Forgiveness Repayment Plans

Student loan repayment plans lower your monthly payments, and the remaining balance is forgiven at the end of your repayment term.

Income-Driven Repayment Plan (IDR)

Monthly payments are 10% of your discretionary income. Your other debts and loans are not taken into consideration when determining what your monthly payments will be. However, your family size and income are verified each year to determine your monthly payment.

The IDR plan lasts 10 – 20 years. After your payment plan ends, your remaining balance is forgiven, and you may need to count it as taxable income. Anyone with an eligible loan may qualify for an IDR.[3]

Income-Contingent Repayment Plan (ICR)

If you are a Direct Loan borrower with an eligible loan, you may qualify for an ICR. The income-contingent repayment amount is up to 20% of your discretionary income. In addition, your family size and income are verified each year[13]

After 25 years, your remaining balance is forgiven but counts as taxable income. Therefore, you are likely to pay more than you would under the Standard Repayment plan. You do not have to work in public service to qualify.

Pay As You Earn (PAYE)

If you qualified for the PSLF Program and took out a Direct Loan between October 1, 2007 – October 1, 2011, with PAYE, your monthly payments will be 10% of your discretionary income. Your family size and how much you make annually are also verified every year to determine your monthly payments.

Under the PAYE, you have to apply each year, and when you’ve completed your payment term, the amount forgiven counts as income. If you decide to participate in the PAYE plan, note that you may pay more than you would under the Standard Repayment plan.[1]

Revised Pay As You Earn Repayment Plan (REPAYE)

You must be a Direct Loan borrower with more than $30K in student loan debt for this plan. Your monthly payments are 10% of your discretionary income. Your monthly payments increase each year, too.

Once you’ve paid into the program for 20 – 25 years, your balance is forgiven. The forgiven balance counts as taxable income. It’s important to note that, you could end up paying more than you would if you participated in the Standard Repayment Program.[3]

Forgiveness, Can You Imagine?

School loan forgiveness is a process. There isn’t a quick way to provide school loan debt relief, but a long-term financial strategy can help.

Be sure to know the type of loan you have and which programs you qualify for. Then, explore all your options. It would be nice to have your school debt eliminated now, but it’s best to approach student loan forgiveness as part of a 10 – 25 year financial plan.

Can my student loans be forgiven after 10 years?

Under the PSLF Program, if you’ve worked as a teacher, fire fighter, nurse, doctor, dentist, or some other public service position, your loans may be forgiven after 10 years.[10]

You will need to have your employer complete a form that you generate using the PSLF Help Tool. You submit the form to FedLoan Servicing after all sections have been completed.

Then, they conduct a review to determine if you have met all the program’s requirements. If your school debt is forgiven, they will notify you directly.

Are student loans forgiven after 20 years?

If you have a federal student loan, and you don’t qualify for any student loan forgiveness program, you could be eligible to receive automatic forgiveness after 20 years.

Forgiveness of any remaining balance after 20 – 25 years is open to all student loan borrowers who are not enrolled in any program. But, you must have made 20 – 25 years of accumulated monthly payments on your student loans and be in good standing. Then, any remaining balance is automatically forgiven.[2]

Do student loans go away after 7 years?

Student loans only go away once they have been paid in full. if you default on your student loans, you still owe the debt, they no longer appear on your credit report after seven years.

Unfortunately, any late payments, delinquencies or defaults also remain on your credit reports for seven years – even if your loans are forgiven or canceled.[11]

Do you pay back student loan forgiveness?

You do not have to repay student loans that have been forgiven because your account is considered paid in full.

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