A Comprehensive Guide to Student Loan Forgiveness Programs

student loan forgiveness programs

If you have student loans, then I’m sure you agree with me when I say that student loans are a huge burden.

Student loan forgiveness and discharge programs offer freedom from the burden of your monthly student loan payment. But it’s not easy to understand what you qualify for and how to apply for student loan forgiveness.

The goal of this guide it to simplify the hard to understand. By the end of it, you will know what kind of forgiveness programs you qualify for and what steps you need to take to apply for them.

Before we get started, there’s some important terminology you should know when it comes to student loans. Since you’re a smart borrower, I’m sure you know most of these definitions already. But in case you forgot, here’s a short refresher.

Useful student loan terms you should know

  • Servicer: The servicer is the company that provides all the logistical services like customer service, billing, etc for your student loans. They’re the ones you call when you have a question about your loan and need to submit paperwork. They, however, do not own the loan or make any kind of loan regulations. The loan servicer is just responsible for enforcing the rules created by the lenders.
  • Lender: The lender is the legal entity that provided the funds for your loan. Since they own the loan and create the loan contract, they make the rules and regulations that borrowers and servers have to follow.
  • Borrower: The borrower is the person who took out the student loan. In most cases, it would be you or, if the loan is a Parent PLUS loan, one of your parents.
  • Third-Party Company: A company to avoid. These are the companies that are neither your lender or servicer and will make countless cold calls claiming that they can offer forgiveness for your student loans. They’ll ask you for hundreds of dollars in fees to help you fill out paperwork to apply for loan forgiveness programs that are open to anyone who’s qualified. Your servicer will help you fill out the exact same paperwork for free. No need to pay a ridiculous amount. I would highly advise not to answer any calls from third-party companies.
  • Forgiveness: Forgiveness programs are programs that will write off a certain amount, sometimes even the entire balance, of your loan. Depending on the program, the write-off may or may not be taxable. Most of the time, forgiveness programs are not immediate deals. You have to meet certain qualifications along with remaining in good standing on your loan to qualify for loan forgiveness.
  • Discharge: Discharge programs, unlike most forgiveness programs, allow for your entire loan balance to be written off immediately. Of course, you have to meet certain requirements to qualify which means in most cases you’re deemed unable to pay your loan due to circumstances out of your control.
  • Subsidized: When a student loan is subsidized it means that the loan’s interest is paid by the government for a specific amount of time under certain circumstances. For example, when you are attending school or on deferment, the interest on your student loans is paid by the government. Most unsubsidized loans do not have this benefit.
  • Deferments: A deferment is a temporary hold on your loan for a certain amount of time. To get a deferment on your loan, you have to meet certain qualifications and be able to prove them with the correct paperwork.
  • Forbearance: A forbearance is very similar to a deferment but unlike a deferment, during forbearance, your student loan will continue to accrue interest daily which is not covered by the government. Thus, it’s normally easier to get a forbearance rather than a deferment.

What type of student loans do you have?

The type of student loan you have has a huge impact on which forgiveness and discharge programs you qualify for. It’s important to know the difference between the types of student loans for this reason.

Not sure what type of student loan you have? Don’t worry, this is one of the most common questions. To figure it out, you can use the National Student Loan Data System (NSLDS).  This website is only for federal loans, however. If you have private student loans, it’s easiest to contact your lender to figure out the type of student loan you have.

Below is a list of the different types of student loans and their definitions.

The different types of student loans

  • Direct Loans: Direct loans are the most common type of loans. They are loans owned by the US Department of Education. All regular student loans taken out after June 30, 2010 are direct loans. Direct loans have some federal benefits that other types of loans do not have.
  • Federal Family Education Loan Program (FFELP) Loans: FFELP loans are owned by banks and financing companies but are federally backed in case of default. FFELP loans have less forgiveness and discharge programs available to them than direct loans.
  • Private Loans: For those of you with private loans, any benefits you receive are dependent on your lender. Private loans are not federally backed and therefore they do not qualify for any of the forgiveness programs listed below.
  • Parent Plus Loans: These are loans that are taken out by a parent or guardian for the student. If your loan is under your parents’ names than you have a Parent Plus Loan. A Parent Plus Loan is either a direct loan or an FFELP loan. These loans don’t qualify for many of the usual programs, however.
  • Stafford Loans: Stafford loans are loans taken out by the student for the student. These loans can also be either a direct loan or an FFELP loan. Usually, these loans are taken out for your bachelor’s program but if you haven’t hit the Stafford loan limit, you can take out unsubsidized loans for your graduate programs.
  • Graduate Plus Loans: If you have hit your Stafford loan limit, you can take out a Graduate Plus Loan to pay for your graduate studies. These loans are always unsubsidized and usually have higher interest rates than Stafford loans.

How do I know who my loan servicer is?

To apply for most of the student loan forgiveness programs, you need to know who your loan servicer is. So that should be your first order of business if you don’t know that information.

Finding out who your loan servicer is simple. Just go to www.nslds.ed.gov and sign in with your FAFSA information. If you forgot your login information, you can reset your login information there too.

Once you’re into the portal, click on “Financial Aid Review” to see every student loan you have. You might notice that you have different services for different loans. Clicking on the blue numbers will show you all of the loan’s information, including your loan servicer’s information.

Student Loan Forgiveness & Discharge Options

student loan discharge options

Now that we went over the basics and you understand the lingo, it’s time to dive into the actual student loan forgiveness and discharge programs.

Let’s first go over the discharge programs.

Student Loan Discharge Programs

As mentioned above in the definition section, a student loan discharge is when the balance of your entire loan is written off immediately.

While the possibility of getting rid of all your student loans in one swell swoop sounds enticing, usually you only qualify for discharge if you can’t pay at all. Those situations, like death, are usually worse than drowning in student loan debt. At least there’s hope of paying it off in your lifetime.

Total and Permanent Disability (TPD) Discharge

What loans qualify for TPD discharge?

TPD discharge is only available for Direct and FFELP loans.

What is the TPD program?

If you become totally and permanently disabled you are eligible for a TPD discharge. You have to back up your claim with a medical certification.

This process may take a few months to complete so it’s a good idea to ask your lender for a forbearance or deferment on your loans while the discharge is processing. If you’re a parent who took out a parent PLUS loan, you can apply for a TPD discharge if either you or the student for whom the loan was taken out for is disabled. Something to be careful of is that the amount discharged may be considered taxable income. Which means if you get a $50k loan discharged, your income for that tax year is your normal income plus $50k.

How to apply for TPD discharge?

No matter what company services your loan, you have to apply through NelNet to receive a TPD discharge. You can contact them via their website (www.disabilitydischarge.com) or by calling them at 888-303-7818.

Closed School Discharge: what happens if your school closes?

As more and more schools close, closed school discharges are becoming more common.

You qualify for this type of discharge if you are attending or on an approved leave of absence from a school that closes. When your school closes you have the choice to either transfer your credit to a different school or have your loan discharged. Picking one will disqualify you from the other. If you graduated over 120 days ago and your school closes, you don’t qualify. 120 days is the normal cutoff attendance time to disqualify you.

How to apply for closed school discharge?

To apply for a closed school discharge, call or contact your student loan servicer.

Death Discharge: What happens if you die?

What happens to your student loans when you die?

Though it’s a little morbid to talk about, it’s a common question people have. If you have federal student loans that fall under the Direct or FFEL programs, your student loans will be discharged upon death. Your loans will not be transferred to your children or your parents or any other family member or spouse.

How to apply for death discharge?

If a family member who has student loans passes, just tell their loan servicer. Usually, once you send them a death certificate, they will discharge the full amount of the loan.

Other Student Loan Discharge Types

While the aforementioned discharge types are the most common, student loans can also be discharged for a few other reasons. If your school commits fraud or if they allowed you to take out student loans but didn’t believe that getting a degree would be beneficial for you, you might qualify for a discharge. The latter usually happens when you don’t have a GED or high school diploma and then school still allows you to take out student loans. The validity of these types of discharges is usually determined on a case-to-case basis.

How to apply: Contact your loan servicer and tell them why you think your school has committed fraud. They’ll look into it on your behalf.

Student Loan Forgiveness Programs

Student loan forgiveness programs are easier to qualify for than the discharge programs listed above.

Public Service Loan Forgiveness (PSLF)

What loans qualify for the PSLF program?

The PSLF program is only available to those of you with Direct student loans. You are not eligible for this program if you have an FFELP loan. If you do have an FFELP loan and want to qualify for the PSLF program, you can consolidate your loan under the Direct Loan program. However, if you do this, any payments you made before consolidating will not count towards forgiveness.

What is the PSLF program? And eligibility requirements for the PSLF program

There are a lot of misconceptions and myths involving the Public Service Loan Forgiveness (PSLF) program. But I’m here to bring those all to rest.

There are two things you need to be eligible for the PSLF program: (1) your employment has to qualify and (2) all of the 120 payments have to be made while employed with a qualifying employer and while on a qualifying payment plan.

The 120 payments on a qualifying payment plan causes trouble for a lot of people. I’ve heard of people spending years working towards 120 payments while on a graduated repayment plan, thinking that they’ll get their loan forgiven. What they don’t realize is that the graduated plan isn’t eligible for PSLF.

There are only two plans that count as qualifying payments plans: an income-driven repayment (IDR) plan and a Standard 10-year plan. This is a little misleading because, by the time you have 120 qualifying payments on the 10-year plan, your loan would be fully paid off. So, if you want to benefit from the PSLF loan forgiveness program, you’ll have to switch to an IDR plan.

To qualify, your payment can’t be more than 15 days late. Even if you make 120 payments, if all of them were made 20 days after they’re due, none will count towards forgiveness.

Something that not many realize is that your qualifying payments don’t need to be consecutive. If you take a year off of your qualifying job to travel and then start working again at a qualifying employer, those payments you made at the previous employer will still count towards forgiveness. This also means if you happen to miss a payment and pay it more than 15 days late, that payment won’t count, but you won’t have to start all over. It’ll just take you a month longer to qualify for forgiveness.

Unlike the Income-Driven Repayment Forgiveness Plan mentioned below, loans forgiven under the PLSF program are not taxable – which is a very good thing.

How to apply for the PSLF program

You don’t have to apply for PSLF until you made your 120 qualifying payments if you want. You can apply beforehand if you want. All you have to do is fill out this form and submit it to Fedloan Servicing. When you apply, even if your loan is not serviced by Fedloan Servicing, it will be transferred there if you qualify. They will then keep track of your forgiveness count.

Teacher Loan Forgiveness (TLF)

What loans qualify for the Teacher Loan Forgiveness (TLF) program?

The TLF program is available for Direct and FFELP loans. However, this program is only available for loans taken out after October 1, 1998. This is the day that Congress created this plan and for whatever reason decided only loans taken out after this date would qualify.

What are the eligibility requirements for the TLF program?

To qualify for the TLF program, you have to be a teacher at a low-income (Title I) school for 5 years. You have to be an actual teacher, not just work at the school as a counselor or librarian.

Not sure if your school is a low-income school? To qualify it has to be on the annual updated Teacher Cancellation Low Income (TCLI) Directory

Normally the amount forgiven is $5,000. However, that can be increased to $17,500 if you’re a special education teacher or teach math or science at a high school.

Can you combine the TLF and PSLF programs?

Even if you qualify for both programs, you can’t do both at the same time. You can get your loans forgiven with both programs, just not during the same time period. For example, if you worked at a Title I school for 5 years from 2010 to 2015, you could use the TLF program to get $5,000 of your loans forgiven. You can then start qualifying for the PSLF program, however, none of the payments you made during that time period count towards your 120 qualifying payments.

How to apply for the TLF program

Once you finish your five qualifying years as a teacher, you can find the TLF application on your loan servicer’s website. You then need to get the “chief administrative officer” of the school you worked out to fill out the certification part of the form.

Income-Driven Repayment (IDR) Plan Forgiveness

You have to be on an IDR plan to take advantage of the PSLF program mentioned above. But even if you don’t qualify for PSLF, being on an IDR plan can be advantageous. After being on an IDR repayment plan for 20 or 25 years, depending on which IDR plan you’re on, the remaining balance on your student loan is forgiven.

What is an IDR repayment plan?

There are several different income-driven repayment plans which are listed below. But before we go over them, I’m going to go over what an IDR repayment plan is.

IDR plans are meant to make your payments affordable. If you can afford to pay extra and don’t qualify for the PSLF program, you should probably not enroll in an IDR plan. IDR plans almost always extend the time it takes to pay off your student loan, which means you’ll be paying more in interest in the long run. If, however, you can’t afford your monthly payments, then an IDR plan is for you.

All the IDR plans listed below, except the income-contingent repayment plan, offer interest benefits. Which means that for the first three years of your loan, any interest that isn’t covered by your monthly payment is subsidized (paid by) the government. For example, if your student loan accrues $60 in interest every month but your IDR payment is only $30 a month, the government will pay the remaining $30 balance.

One thing to remember is that all the IDR plans only last for 12 months. Once your 12 months are over (based on the date you first applied), you have to reapply.

Also, it’s important to know beforehand that IDR forgiveness can be considered taxable income, meaning the amount forgiven will be included in your income and you will have to pay taxes on it the following year.

The different types of IDR repayments plans

Income-based repayment plan (IBR)

The IBR plan is probably the most well-known income-driven repayment plan.

If you’re an FFELP borrower, this is the only IDR plan you’re eligible for. However, if you consolidate your loan under the Direct Program, you would be eligible for any of the IDR plans.

Payments on the IBR plan are 15% of your discretionary income. This income is defined as all income you get that is more than 150% of the poverty level for your household size. If your student loan was taken out on or after July 1, 2014, your payments are 10% of your discretionary income. After 25 years of making payments on your IBR plan, the rest of your student loan is forgiven. The exception to this rule is again if your loan was taken out on or after July 1, 2014. In that case, your remaining student loans will be forgiven after 20 years.

Income-contingent repayment plan (ICR)

This is the oldest type of IDR repayment plan.

Payments on the ICR plan are calculated a little differently than the other IDR plans. The payments are normally a little higher than other plans. Unless you have a very small balance on your student loans (under $3,000). This is because the ICR plan uses the smaller of a payment calculated based on your income or one based on your loan balance. So even if you have a high salary, if you have a low student loan balance, your monthly payments can be pretty low.

After 25 years of making payments on your ICR plan, the remaining balance on your student loans is forgiven.

Pay as you earn repayment plan (PAYE)

PAYE repayments plans are very similar to the IBR plan. However, to qualify for PAYE, you couldn’t have had any student loans before October 1, 2007, and your current student loans had to have been acquired after October 1, 2011.

PAYE payments are calculated based on 10% of your discretionary income using the same definition that IBR plans use. After 20 years of payments on your PAYE plan, your student loans are forgiven.

Revised pay as you earn repayment plan (REPAYE)

This is the newest IDR plan which was released in 2015. It’s very similar to other IDR plans. Just like the PAYE plan, it’s payments are based on 10% of your discretionary income. Again, like PAYE, after 20 years of payments, your undergraduate student loans are forgiven. However, if you have graduate student loans, those aren’t forgiven until you 25 years of payments.

Because of this, if you do qualify for PAYE and have graduate student loans, the PAYE repayment plan would be a better option since your loans will be forgiven 5 years earlier.

The REPAYE plan has the best interest benefits of all IDR plans. Any interest, for the first three years, that isn’t covered by your payments is paid by the government. After those three years are up, 50% of any interest that isn’t covered by your payments will be paid by the government for the duration of your REPAYE plan.

How to apply for any IDR plan

If you have Direct loans, you can apply for any IDR plan electronically at www.studentloans.gov. Your servicer will also have forms available on their website.

What if I have Parent PLUS loans?

Parent PLUS loans don’t qualify for any IDR plan. However, if you consolidate your student loans under the Direct program, you will be able to qualify for the ICR plan. This could be a very good idea if you have parent plus loans and are having trouble making your payments.

Borrower Defense to Repayment Loan Forgiveness

This is an interesting forgiveness program. If you believe you were charged tuition and your school didn’t uphold their end of the bargain, you may qualify for borrower defense to repayment loan forgiveness.

If the school misled you or violated specific state laws and you can prove it then you may be able to get your whole student loan forgiven. According to studentaid.org, this is how you qualify:

“ …you may be eligible for borrower defense to repayment forgiveness of the federal student loans that you took out to attend a school if that school misled you, or engaged in other misconduct in violation of certain state laws. Specifically, you may assert borrower defense by demonstrating that the school, through an act or omission, violated state law directly related to your federal student loan or to the educational services for which the loan was provided. You may be eligible for borrower defense regardless of whether your school closed or you are otherwise eligible for loan forgiveness under other laws.”

How to apply for borrower defense to repayment loan forgiveness program?

You can apply electronically online here.

Which student loan forgiveness program is best for you?

The best student loan forgiveness program for you is very dependent on your situation – whether you can make payments or not, whether you have other debt or not, or a myriad of other factors.

I hope that after reading this post you have a better understanding of your options regarding student loans and forgiveness.

If you have any questions, please leave them in the comments below


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