Student Loan Forgiveness

Unfortunately, Student loan forgiveness can only be granted for your Federal Loans. In the last decade there has been numerous student debt related legislation. However, none of these new laws addresses the issues of Private Student loan debt with any sort of loan forgiveness.  (Update 3/25/13: New legislation has been proposed that would address Private Loans and offer loan forgiveness.)

It should be noted that there are a variety of types of Student Loan Forgiveness offered by the Federal Government. A more exhaustive list of these programs can be found here. (This is definitely worth looking over for all military, teachers, and Peace Corps).

For the vast majority of people, Federal Student Loan Debt Forgiveness will occur via the Income Based Repayment (IBR) plan and the Pay As You Earn (PAYE) repayment plan.

IBR and PAYE loan forgiveness:

A more detailed description of the differences between IBR and PAYE, and who qualifies for each program can be found here. For purposes of loan forgiveness, the exciting part about these programs is that as long as you make the minimum required payment for 20 years under PAYE or 25 years under IBR, all of your remaining federal student loans will be forgiven. This program applies regardless of your occupation or employer. Even if you are late on a payment, payments received within 15 days of their deadline count towards this program.

-> Sherpa Tip #1: The IBR and PAYE were both created fairly recently (2007 for IBR and 2012 for PAYE). As a result there has not yet been enough time for anyone to qualify for debt forgiveness under these plans. You should keep detailed records of all of your payments so that when the time comes for your loans to be forgiven, you can complete whatever documentation that the government and your loan servicers require.

-> Sherpa Tip #2: There are major tax consequences to the 20-year and 25-year loan forgiveness plans. Read about them here and plan accordingly.

Public Service Loan Forgiveness:

If you participate in the IBR or PAYE, your loans can be forgiven after 10 years of public service. The government defines public service fairly broadly and includes all federal, state, and local government jobs as well as 501(c)(3) jobs (these are non-profit employers). One nice part about this program is that the 10 years do not have to be consecutive, so if you work for the government for 5 years, work elsewhere, then come back to the government, you can still qualify after you’ve made 120 eligible payments (10 years worth). Certifying your public service payments can be a bit difficult as most loan servicers are still adjusting to this relatively new law. Contact your loan servicer and make sure that you file all the necessary documentation with them.

-> Sherpa Tip: The Public Service Loan Forgiveness is also a new program and the earliest anyone could qualify for loan forgiveness under this program would be in 2017. As a result much of the paperwork and documentation required has not yet been released. To protect yourself, keep detailed records of all of your payments and records showing that you certified your public interest payments. Doing so could say you a lot of time 10 years from now.

The Federal Government’s Page on Public Service Loan Forgiveness can be found: here.