Could You Qualify for Student Loan Forgiveness?

October 7, 2013

If you have student loan debt and work in the public sector, you may be eligible for student loan forgiveness. It has recently been reported that loan forgiveness programs are being underused. The Consumer Financial Protection Bureau thinks that people may not be aware of the programs, or they may be confused about which loan repayment program they qualify for.

Need help figuring it all out? We’ve got you covered.

Public service/government/non-profit jobs

  • If you are a full-time employee in the public service or non-profit sector, then you can have the remainder of your outstanding student loans forgiven after you successfully make 120 qualified loan payments (that is 10 years).
  • The Public Service Loan Forgiveness Program (PSLF) broadly defines the types of employment that qualify: any employment with a federal, state, or local government agency, entity, or organization, or a not-for-profit organization that has been qualified as a 501(c)(3) by the IRS. Even employment with a private not-for-profit employer that is not a 501(c)(3) may qualify if the employer provides certain specified public services such as emergency management, military, public safety, public education, etc.
  • What are the downsides? Only loans received under the William D. Ford Federal Direct Loan Program are eligible – you cannot have Perkins Loans or Federal Family Education Loans forgiven under this program UNLESS you consolidate them into a Direct Consolidation Loan. Only payments made after October 1, 2007, while you are working full-time for a qualifying organization will count toward the 120 payments. Lastly, you must still be employed at the time you apply for PSLF forgiveness and also at the time forgiveness is granted.

Teaching in a low-income area

  • If you teach full-time for five complete and consecutive academic years in certain elementary and secondary schools that serve low-income families, you may be eligible for the Teacher Loan Forgiveness Program.
  • You can have up to $17,500 forgiven on your Direct Subsidized and Unsubsidized Loans and your Subsidized and Unsubsidized Federal Stafford Loans. Note: Not all teachers will qualify for the full $17,500 – you have to be a highly qualified teacher in math, science, or special education. All other teachers who meet the requirements can have up to $5,000 forgiven.
  • Which schools qualify? Elementary and secondary schools that are 1) in a school district that qualifies for funds under Title I of the Elementary and Secondary Education Act; 2) has been selected by the US Department of Education because more than 30% of the school’s total enrollment is made up of children who qualify for services under Title 1; and 3) is listed in the Annual Directory of Designated Low-Income Schools for Teacher Cancellation Benefits.

Income-Based Repayment

  • Income-Based Repayment (IBR) is meant to make student loan debt manageable and bases your monthly payment on your income and family size. Your monthly payment will be 15% of your discretionary income.
  • If your monthly payment doesn’t cover the interest that accrues each month, the government will pay your unpaid accrued interest for up to 3 consecutive years from the date you begin repayment.
  • After using IBR for 25 years, any remainging balance will be forgiven.
  • Which loans qualify for IBR? Loams from the William D. Ford Direct Loan Program and the Federal Family Education Loan Program. PLUS loans made to parents and private loans are not eligible.
  • How do you qualify? If the amount you would have to pay under a standard 10-year repayment plan is higher than the amount you would have to pay under IBR, then you qualify. Once you’ve initially qualified, then you may continue to make payments under the plan even if your financial situation changes and you would no longer qualify.
  • What is the downside? Because you are paying a reduced amount, you will be repaying your loan for a longer period and will pay more interest over the life of the loan than you would under other plans. You also must submit annual documentation so the loan servicer can set your payment amount for each year.

Have you used one of the programs? Share your experience with us.