If you’ve been struggling to make your student loan payments, student loan forgiveness may be a good option for you. But before you apply, make sure that your loans qualify for this program.
Currently, the Education Department says that most federal student loans qualify for forgiveness. This includes Direct loans for undergraduate and graduate students and PLUS loans for parents.
Student Loan Forgiveness Programs
Student loan forgiveness can be a huge help if you’re struggling with debt. It can reduce your monthly payments and save you thousands of dollars over the long term, but there are a few things to keep in mind before you apply.
First, you need to be sure your loans are eligible. Most student loan forgiveness programs require you to have federal loans, so be sure to check if your subsidized or unsubsidized student loans are backed by the government.
Then, you’ll need to fill out an application on the Federal Student Aid website. Make sure your password is correct and that you update your contact information, too.
You may be able to qualify for student loan forgiveness through an income-driven repayment plan. These plans base your payments on your income and family size, and forgive any remaining balances after a period of consistent payments. There are four such plans: REPAYE, Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE) and Income-Contingent Repayment (ICR).
In general, these plans are best for borrowers who want to work in lower-paying fields and are willing to make consistent, low-dollar payments over a long period of time. Be sure to recertify your income every year to stay on track for loan forgiveness.
Another option is to get your loans forgiven through Public Service Loan Forgiveness. This program forgives your loans if you have worked in public service for at least 10 years. You must be employed full-time by a government agency or nonprofit organization to qualify.
There are also a few other student loan forgiveness programs that can help you pay off your loans. These include the Teacher Loan Forgiveness Program, which can forgive 60 percent of your outstanding student loans after you have made 120 consecutive payments over a decade.
While student loan forgiveness can be helpful for reducing your monthly payments, it does have a negative impact on your credit score. The average age of your accounts decreases after you’ve made student loan payments, which can lower your score by a few points.
Income-Driven Repayment Plans
Income-driven repayment plans are student loan repayment options that make it easier for borrowers to pay off their loans. These plans require monthly payments based on the borrower’s discretionary income, and if the payment is less than the amount of income that could have been used to pay off the debt, the remaining balance may be forgiven after 20 or 25 years under some IDR plans (depending on which plan you sign up for).
The lower monthly payments also reduce the amount of interest you will owe over time. The main disadvantage of these plans is that they can negatively amortize your loans if you have a period of low income.
To apply for these plans, you will need to supply proof of your income. Generally, this can be either a copy of your most recent federal income tax return or IRS tax return transcript. If you currently don’t have taxable income, or you receive only untaxed income, then you can use alternative documentation to verify your income, such as a pay stub.
If you qualify for an income-driven repayment plan, you must recertify your income annually. This certification process requires you to provide updated information about your income, family size and other details of your situation. You can change your eligibility to another IDR plan or your payment amount if your income or family size changes significantly before your annual certification deadline.
There are four IDR plans available: IBR, PAYE, REPAYE and ICR. Eligibility for these plans depends on your total federal student loan debt, whether you are a single or married borrower and whether you have a subsidized loan or a unsubsidized loan.
IBR and PAYE are designed to help borrowers who want to work in a low-paying field but still have high debt. The government calculates discretionary income by subtracting a borrower’s adjusted gross income from 100 percent or 150% of the poverty line in their area, depending on the IDR plan they choose.
Under the new IBR, PAYE and REPAYE plans, borrowers can expect to pay about $0.50 for each $1 they borrowed, which will save them thousands of dollars over the life of their loan. In fact, many undergraduate borrowers may see savings of over $1,000 per year when they switch to these income-driven repayment plans.
Perkins Loan Forgiveness Program
If you are a teacher, you may qualify for the federal Perkins Loan Forgiveness Program. The program forgives a portion of your student loans if you teach at an elementary or secondary school that serves low-income students. The percentage of the loan that can be forgiven varies, depending on your field of work and the number of years you work at that school.
To apply for the Perkins Loan Forgiveness Program, you will need to complete an application. This can be done by contacting your loan servicer or your school’s financial aid office. You will also need to submit proof of employment.
Unlike other student loan forgiveness programs, the Perkins Loan Forgiveness Program does not require you to make payments. Instead, it will cancel a certain percentage of your loan each year you work in a public service job for 12 consecutive months or more.
The program was designed to encourage people to pursue careers that benefit the public, which helps them lower their debt. But in order to be eligible, you must be a full-time employee working in a government agency for at least three years.
You will need to complete a certification form for each year of service and have your employer sign it. You will then need to submit it every year to ensure you stay on track for this forgiveness program.
In addition to submitting the certification, you will need to switch your monthly payment plan to an income-driven repayment plan. This can help you lower your monthly payments and extend your repayment term to 20 or 25 years.
Another option is to consolidate your loans into a Direct consolidation loan. This will simplify your monthly payments and allow you to have just one loan to pay each month. However, this can rule out your future eligibility for forgiveness under the Perkins Loan Forgiveness Program.
If you are interested in applying for the Perkins Loan Forgiveness Program, talk to your loan servicer and your school’s financial aid office. They can help you with the application process and provide additional information about the program.
Public Service Loan Forgiveness Program
When it comes to student loan forgiveness, the Public Service Loan Forgiveness Program (PSLF) is a great option for many borrowers. The program forgives student loans after a borrower has made 120 qualifying payments while working for an eligible government or nonprofit organization.
However, it’s important to remember that this program is only available to people who are working full time for a qualified employer at the time they apply for forgiveness. It’s also important to be sure you meet the other requirements before submitting an application.
One way to make sure you’re on track for PSLF is to certify your employment every year. You can do this by completing an Employment Certification for Public Service Loan Forgiveness form, which you can complete online.
Another way to ensure that you’re on the right path is to make payments toward your debt using a repayment plan. This could be done through a traditional monthly payment or a graduated income-driven repayment plan.
If you make your payments in this manner, it’s a good idea to check the balance on your loans periodically so that you know what you have left to pay. If your loan balance is too high, you may want to consider consolidating your federal loans into one, lower-balance loan.
While the Public Service Loan Forgiveness Program is a wonderful option for those working in the public sector, it’s also plagued by problems, which have resulted in many borrowers not receiving the relief they deserve. The Biden administration recently announced changes to the program that have sped up some forgiveness applications, but there’s still plenty of work to be done if you want to have your federal loans completely forgiven.
For example, under this new change, the Education Department is going to allow borrowers to count prior loan payments as part of their PSLF eligibility, even if those loans were previously disqualified. In addition, military service members will be able to count all months spent on active duty towards their PSLF forgiveness, regardless of whether those payments were paused due to active duty or if they went under a non-qualifying repayment plan.
