If you’re struggling with student loan debt, federal forgiveness could help. But it’s important to understand that qualifying for debt relief takes at least 20 years, and requires payments based on income during that time.
Several programs have unique eligibility requirements and strict approval standards. Here’s a look at some of them, and how to apply for them.
Student Loan Forgiveness Programs
If you’re struggling to make your monthly student loan payments, you may be eligible for federal debt relief programs. These include income-driven repayment (IDR) plans, public service loan forgiveness and teacher loan forgiveness.
IDR and PSLF are designed to forgive borrowers’ outstanding balances when they make on-time, qualifying payments under the plan over a period of 20 or 25 years, depending on the type of IDR or PSLF you qualify for. If you’re interested in IDR or PSLF, check out the Department of Education’s website to learn more about each program and how to apply.
Those who don’t qualify for forgiveness under these programs can opt to pay off their loans using an IDR plan that bases your payments on your income and family size. This plan is available for undergraduate and graduate loans.
Another option is the Revised Pay As You Earn program. This plan bases your monthly payment on 10% of what you earn, and it’s available for all borrowers with federal student loans.
However, this plan isn’t as flexible as other IDR plans, so your monthly payments might be higher if you expect your income to increase significantly over time. You also need to stay within the limits of your plan, or you could face penalties and fees.
In the meantime, you can try negotiating with your creditors to lower your monthly payments through a refinance or consolidation. This will allow you to avoid hefty interest rates and fees.
Alternatively, you can opt to have your loans discharged through student loan settlement or bankruptcy. Both of these options can reduce your debt by as much as 40% in severe cases.
You can find out more about these programs by visiting the Department of Education’s website or contacting them directly. Be sure to file any required documents promptly.
If you’re a member of the military, you’ll likely qualify for forgiveness through a federal program that forgives your student loans when you’ve served your country for at least a year and made qualified payments under a qualifying repayment plan. In addition, veterans who are totally and permanently disabled through a medical diagnosis can receive forgiveness of their federal student loans.
Public Service Loan Forgiveness
If you work for the government or a nonprofit organization, you might qualify for federal loan forgiveness through the Public Service Loan Forgiveness (PSLF) program. The program forgives the remaining balance on Direct Loans after you make 120 qualifying payments while working in a job that meets certain qualifications.
The PSLF requirement is simple: You must work in a public service job, such as teaching, firefighting, first-responders, nursing and the military. You must also work full-time or at least 30 hours a week for your employer and be in a repayment plan that allows you to make monthly payments based on your income.
It’s important to keep track of your student loan payments and job status on an annual basis so you can ensure that your eligibility isn’t affected by any changes in your employer. To do this, complete the Employment Certification for Public Service Loan Forgiveness form. It’s easy to fill out and should be submitted each year or when you change employers.
Another way to help ensure you’re on track for forgiveness is to consolidate your loans into a new federal Direct Consolidation Loan. Generally, this restarts your count of payments toward PSLF, but the Department of Education has announced a limited waiver of that rule.
This limited waiver applies to borrowers who have made 10 years of on-time payments while in the standard or income-driven repayment plans and are enrolled in a public service job. This limited waiver is in effect until October 31, 2022.
Borrowers pursuing the waiver should be aware that the Department of Education’s loan servicer has changed to MOHELA and there’s a pandemic-era payment pause that started in March 2020. All months during that pause count toward the 120 needed for forgiveness.
If you’ve consolidated your loans, be sure to complete the Employment Certification for Public Service Loan Forgiveness and make sure your lender records your confirmed qualifying payments. It’s worth the effort, as this can help you avoid falling behind on your repayment.
As of November 2022, there were 359,790 borrowers who qualified for forgiveness through the waiver rules. This number is expected to increase as borrowers who have been in the program for a decade are likely to be eligible for cancellation automatically under Biden’s plans.
Income-based repayment is a repayment plan that offers reduced payments over 20 or 25 years, followed by forgiveness of the remaining balance. This is a common option for borrowers with federal student loans, and it can be a good choice for those who are struggling to make payments under the standard 10-year repayment plan.
However, the monthly payments under income-based repayment are not always affordable. They can be higher than those under the standard plan for some borrowers, or lower for others. It’s important to compare all of your options when considering federal loan forgiveness so you can choose the one that’s right for you.
Under income-driven repayment, you’re required to recertify your eligibility and income every year, unless you’re eligible for an alternative plan or you’ve received an official income adjustment. This can be done online, by phone or through an application. You can also submit documents early if your income or family size changes significantly before the annual certification date.
If you miss the deadline to recertify, your student loans will be automatically placed in the standard plan and your payments will increase accordingly. You’ll be able to ask your servicer to recalculate your payment amount at any time, but you must submit documentation before your annual certification date.
In addition, if you’ve been in default or have consolidated your loans, previous payments will no longer count toward forgiveness under income-driven repayment. If you’re in an income-driven repayment plan, you can only enter another one if you rehabilitate your loans to exit default and make payments on them again.
Many borrowers with older loans have a difficult time getting their debts forgiven under income-driven repayment. The Department of Education recently announced changes to the program that will help more borrowers get their debts canceled after 240 months or 300 months in repayment.
The new changes should make it easier for thousands of borrowers who have paid for decades to get their debts canceled through this program. According to the Student Borrower Protection Center and the National Consumer Law Center, only 32 borrowers have received forgiveness under income-driven repayment since it began in the 1990s.
Pay As You Earn
The Pay As You Earn program is an income-driven repayment plan that allows you to lower your student loan payments based on your income and family size. You can apply for this plan on the Federal Student Aid website or through your student loan servicer.
You must certify your income and family size each year with your loan servicer to keep your monthly payments based on them. You must also make payments on time to qualify for this plan.
This option can help you avoid delinquency or default, which can have a negative impact on your credit score and bar you from taking advantage of other federal student loan benefits. However, it can increase the amount of interest you owe on your loans.
Under this plan, you make a reduced payment that is calculated by subtracting your discretionary income from 150 percent of the poverty guideline for your state and family size. This option is available to borrowers with Stafford, Graduate, and Professional Loans.
Another benefit of the PAYE program is that it offers interest subsidies. The government will pay the remaining interest on your subsidized loans for the first three years of repayment, and 50% of the interest on your unsubsidized loans for the remainder of the loan term.
In addition, this option can save you money on your taxes. Borrowers can claim a tax deduction for the interest they pay under this plan.
The Revised Pay As You Earn (REPAYE) plan is a new option for federal student loan borrowers that was launched in 2015. It is designed to help more borrowers repay their loans over the life of the loan.
REPAYE will allow you to repay your loans over 20 years for undergraduate and 25 years for graduate and professional students. It also offers a partial interest subsidy for the first three years of repayment, which will save you money on your taxes.
REPAYE is a great option for borrowers who are interested in paying their loans off quickly and saving on interest costs. The plan is also a good choice for borrowers who have a high balance on their loans, as the interest subsidies can prevent them from facing a sizable tax obligation at the end of their loan repayment period.