- Student Loan Forgiveness Programs can be used in a variety of situations.
- Some programs require borrowers to be in a certain field or occupation.
- Other programs only apply to federal student loans.
- Student loan forgiveness can also have tax consequences.
Today we will discuss a dozen different student loan forgiveness programs. For each program we will cover what is necessary to qualify for forgiveness and how to have the student debt wiped away. Though erasing student loans can be a difficult process, for many, it represents the best path to financial freedom from student loans.
The types of forgiveness we will be covering include:
What is Student Loan Forgiveness?
Put simply, student loan forgiveness is the erasing of student loan debt. Money that was previously owed to banks and lenders is wiped off the books without the borrower having to pay off the loan.
While such a process sounds like a dream come true, most borrowers will find qualification to be a difficult process. Student loan forgiveness is a long road and a tough process, not a magic wand.
For the purposes of this resource we will use the terms forgiveness and repayment assistance interchangeably. Whether the debt is forgiven, or somebody else is paying it off, the result is the same: less student debt to worry about.
Of all the loan forgiveness programs, Public Service Loan Forgiveness (PSLF) may be the best. Borrowers with federal student loans can have all of their federal debt eliminated in full after 10 years of public service. The cherry on top of this awesome program is that the debt is forgiven tax-free.
Qualifying for Public Service Loan Forgiveness has three basic requirements.
- The loans have to be eligible federal loans.
- The borrower has to make timely payments on an eligible repayment plan.
- The borrower must be working full-time for an eligible public service employer.
While these three retirements seem simple, they each represent potential hurdles that can cause problems for borrowers.
Eligible Federal Loans – Not all federal loans qualify for PSLF. Fortunately, certain loans that do not qualify can become eligible via the process of federal direct consolidation. However, going through consolidation also restarts the forgiveness clock. This means that borrowers who need to consolidate should do so right away. It also means that consolidation should only be done when necessary.
Eligible Repayment Plan – Only certain federal repayment plans qualify for PSLF. The two most common examples that do not qualify for PSLF are the graduated and extended repayment plans. Most borrowers pursing PSLF stick with income driven repayment plans such as IBR, REPAYE, and PAYE. The one exception to the eligible repayment plan requirement is legislation that was signed into law in 2018 that allows borrowers who mistakenly enrolled in the wrong repayment plan to qualify. The Federal Student Aid website explained the procedure for signing up. Borrowers would be wise to not rely upon this exception as it is temporary and will be eliminated when the available funds run out.
Eligible Public Service Employer – Borrowers who work for the government or for a 501(c)(3) non-profit meet this requirement. Other public service employers can qualify, but things get a bit more complicated. The best way to check employer eligibility is to complete an employer certification form and mail it in to your student loan servicer. This step will cause a review of your account to track progress towards the required 10 years (120 payments). For this reason, it is recommended that borrowers complete an employer certification form on a yearly basis.
Anyone considering Public Service Loan Forgiveness would be wise to study the program in detail and make sure they understand the basics of the program as well as the fine print.
All federal borrowers are eligible for forgiveness as long as they make monthly payments based upon their income.The forgiveness program that has the widest potential group of borrowers is the Income-Driven Student Loan Forgiveness Program. Under this forgiveness program, a borrower’s federal loans are forgiven after 20 to 25 years of payments based upon their discretionary income. Once the necessary number of payments have been made, the remaining debt is forgiven. However, the IRS will treat the forgiven debt as taxable income.
There are a number of Income-Driven Repayment Plans for borrowers to consider.
|Plan||Discretionary Income Required||Years Until Forgiveness|
|ICR - Income-Contingent Repayment||20%||25|
|IBR - Income-Based Repayment||15%||25|
|PAYE - Pay As You Earn||10%||20|
|IBR for New Borrowers*||10%||20|
|REPAYE - Revised Pay As You Earn||10%||20 or 25**|
** Borrowers with graduate school debt will take 25 years while those with undergrad only can qualify after 20 years.
Eligibility requirements for these different repayment plans can vary.
Each income-driven repayment plan comes with certain requirements and provisions that can impact a borrowers decision.
- ICR is the only repayment plan that can be used by those with Parent PLUS loans.
- REPAYE has a special provision for borrowers whose payments are less than the monthly interest.
- IBR and PAYE allow borrowers to file taxes separately from their spouse in order to lower their discretionary income (REPAYE does not allow this).
- PAYE is only available to borrowers who were a new borrower as of Oct. 1, 2007, and must have received a disbursement of a Direct Loan on or after Oct. 1, 2011.
Due to the fact that qualifying for forgiveness takes at least 20 years and requires a portion of income during that time, opting for this program may not be the best financial move for many borrowers. For some, the cost of two decades with of payment, plus the tax bill on forgiveness ends up costing more than aggressive repayment of the debt.
Borrowers who die during the course of repayment or become permanently disabled are eligible to have their federal student loans discharged, which means they no longer have to make payments.
Borrowers with private student loans may also be eligible for a similar discharge of the debt, but the terms of conditions in the event of death and disability vary from lender to lender. The loan contract will specify whether or not loans can be forgiven under these circumstances.
Parents who borrow Parent PLUS loans for their child can also have the debt forgiven in the event that the parent or child for whom the loan was borrowed dies.
Student Loan Discharge Due to Death – In order for a borrower, or parent in the case of Parent PLUS loans, to have the debt forgiven, the federal student loan servicer usually needs to be supplied with a copy of the death certificate. At that point, the remaining balance can be discharged in full.
Student Loan Discharge Due to Permanent Disability – For a borrower who has become permanently disabled to have their debt discharged, they must provide proof of permanent disability to the federal loan servicer Nelnet. Nelnet handles disability discharge requests for all federal loans. Borrowers who are temporarily disabled or unable to work in their field are not eligible for a disability discharge.
Borrowers are able to demonstrate permanent disability in one of three ways:
- Borrowers can submit documentation from the U.S. Department of Veterans Affairs (VA) showing that the VA has determined that they are unemployable due to a service-connected disability.
- Borrowers receiving Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits, can submit a Social Security Administration (SSA) notice of award for SSDI or SSI benefits stating that their next scheduled disability review will be within five to seven years from the date of their most recent SSA disability determination.
- Physicians can certify that a borrower is totally and permanently disabled. The physician must certify that the borrower is unable to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment that:
- Can be expected to result in death,
- Has lasted for a continuous period of not less than 60 months, or
- Can be expected to last for a continuous period of not less than 60 months.
Full details on the disability discharge process and an application can be found at disabilitydischarge.com
Finally, the rules regarding taxation of death and disability discharge have recently changed. In the past, this form of loan forgiveness was taxed by the IRS ($50,000 of forgiven student loans would be taxed as $50,000 of income). As of January 1, 2018, loans discharged due to death and disability are no longer taxed. However, this tax provision is set to expire in 2025.
If your school closes down, it may be possible to have your federal student loans forgiven.
The good news is that 100% of federal direct loans, as well as FFEL and Perkins loans can be discharged when a school closes.
The bad news is that the requirements for this discharge are fairly strict.
Your loans can only be forgiven if one of the following applies:
-> Your school closes while you’re enrolled, and you do not complete your program because of the closure. If you were on an approved leave of absence, you are considered to have been enrolled at the school.
-> Your school closes within 120 days after you withdraw.
Making things even more complicated, is that even if you meet one of the above requirements, you still might not be eligible for forgiveness if:
- You are completing a comparable educational program at another school
- through a teach-out agreement with the school,
- by transferring academic credits or hours earned at the closed school to another school,
- or by any other comparable means.
- You have completed all the coursework for the program, even if you have not received a diploma or certificate.
- You withdraw more than 120 days before the school closes.
In order to start the forgiveness process due to a school closure, contact your federal student loan servicer responsible for the loans.
The Department of Education also has a page tracking the various school closings and provides more specific details as it pertains to individual schools.
Even if you are successful getting your student loans discharged due to your school closing, you may not be totally out of the woods. The IRS may treat the forgiven debt as income, potentially creating a large tax bill.
Numerous student loan forgives programs exist for individuals employed in certain fields or by certain employers. The jobs and programs we have listed below are by no means exhaustive, but should serve as an example of the many forgiveness programs that are out there. Our list focuses mainly on the most common professions with forgiveness programs and the largest forgiveness programs.
If you don’t see your profession listed below, taking some time to do some research may yield some positive results. Like scholarships, there are a multitude of forgiveness programs for all sorts of occupations.
Today we will look at various options for teachers, lawyers, the military and nurses, but a number of other career specific programs exist including: doctors, social workers, firefighters, librarians and law enforcement. Some forgiveness programs even exist for Peace Corps and AmeriCorps volunteers.
#6 Student Loan Forgiveness for Teachers
Most teachers are eligible for the Public Service Loan Forgiveness program. However, the forgiveness opportunities are not limited to PSLF. Numerous other programs exist to help teachers manage get their student debt under control.
The Teacher Loan Forgiveness Program
The Teacher Loan Forgiveness program provides up to $17,500 for five years of teaching. The credit can only be applied to federal direct and stafford loans.
- Teach for Five Years
- Teach At A Low Income School
- Federal Loans cannot be in Default
- Cannot have student loans from before October 1, 1998.
- Must be a “Highly Qualified” Teacher
The Highly Qualified Teacher requirement is where this form of forgiveness gets complicated. To meet this requirement, a borrower must have at least a bachelor’s degree and have received full state certification. Borrowers on a provisional, temporary, or emergency certification will not meet the Highly Qualified requirement. Beyond these basics requirements, additional requirements exist for certain grade levels. The Department of Education’s Student Aid website has the full details on the Highly Qualified Teacher requirement.
Finally, the full $17,500 is only available to math, science and special education teachers. Those that teach other subjects can have a maximum of up to $5,000 forgiven under this program.
If you are interested in this program, the full details as well as application instructions can be found on the Department of Education Teacher Forgiveness page.
We should also note that forgiveness under the Teacher Loan Forgiveness Program can affect options for Public Service Loan Forgiveness. Though PSLF takes longer, the benefit is far greater. Teachers should carefully consider their options before opting for one program or another.
Perkins Loan Cancellation for Teachers
This program will cancel up to 100% of a teacher’s Perkins loans within 5 years. Teachers are eligible for Perkins Loan Cancellation if they teach at a low-income school listed in this database.
Those that don’t teach at a low-income school can still qualify if they teach any of the following subjects: mathematics, science, foreign languages, bilingual or special education, or any subject determined by the local state education agency to have a shortage of qualified teachers.
Loan forgiveness comes after each year to eventually total 100%
- 15% canceled per year for the first and second years of service
- 20% canceled for the third and fourth years
- 30% canceled for the fifth year
For full qualification requirements, be sure to check out the Department of Education page on Perkins Loan Cancellation.
State Based Programs for Teach Loan Forgiveness
Many individual states also have teacher student loan forgiveness programs in place to recruit new teachers. These programs, requirements, qualifications, and rewards can vary greatly from one state to the next.
The American Federation of Teachers maintains a large database of the State Based Teacher Forgiveness Programs.
All teachers should investigate loan forgives programs in their state and even their individual school district. Looking into these programs takes very little time and the effort could be worth thousands of dollars.
#7 Student Loan Forgiveness Programs for Lawyers
Surprisingly, there are a large number of student loan programs to help lawyers out. Many of these programs are called Loan Repayment Assistance Programs or LARPs for short. Most student loan help for lawyers is aimed at those working as prosecutors, public defenders or some capacity in the public interest, but a wide cross section of attorneys may be able to qualify for some programs.
Law School Loan Repayment Assistance Programs
Many law schools offer programs to help graduates working in public service make student loan payments.
The quality of these LRAPs vary greatly from school to school. If there is any pattern, it seems that the higher tier, highly regarded schools seem to have the most robust repayment assistance. However, each school is different, and the terms seem to be unique to each school.
Equal Justice Works keeps a list of the various school based LRAPs. However, any graduate, especially those employed in a public interest capacity would be wise to reach out to their law school to investigate any potential options.
The John R. Justice Student Loan Repayment Program
The John R. Justice Student Loan Repayment Program is a nationwide opportunity that provides loan repayment assistance for state public defenders and state prosecutors.
Repayment award benefits are a maximum of $10,000 per year and $60,000 lifetime per attorney. Repayment assistance can only be used towards federal direct loans and FFEL loans. Private loans, as well as Parent PLUS loans, are not eligible.
Recipients must agree to continue as prosecutors or public defenders for at least 3 additional years.
Though the program was created by the federal government, it is administered at the state level. Further details on the program, including the applicable state agency to contact, can be found here.
Employer Forgiveness and Loan Repayment Assistance
Numerous employers offer student loan assistance as an incentive to recruit employees. This is especially true within the legal field.
Federal employees may be eligible for recruitment and retention programs that provide loan repayment assistance. The office of personnel management has more details here. The Department of Justice also has a dedicated Attorney Student Loan Repayment Program.
The federal programs are merely examples of the many employer based student loan assistance programs that can be found. These programs exist on the State and Local levels and many private employers also offer loan assistance.
This is a great question to inquire about when learning about a compensation package with a new employer. It is also probably worth a quick email over to HR to check if your current employer has such a program.
State Based Loan Repayment Programs
Most states also offer programs to encourage attorneys to take jobs as prosecutors or public defenders.
These programs also vary greatly in terms of size and scope. Some of the programs are funded by legislative appropriations while others rely upon private funding.
The American Bar Association has a listing of the state based programs along with links to the necessary contact information and application forms.
#8 Military Student Loan Forgiveness and Loan Assistance Programs
The men and women serving the country are also eligible for some excellent forgiveness and loan assistance programs.
Some of these programs are open to all members of the military while others are dependent upon your branch of service or the nature of the work performed.
The Military College Loan Repayment Program (CLRP)
The Military College Loan Repayment Program (CLRP) is a recruitment incentive authorized by Congress.
The program is designed to help those who join the military after incurring student loan debt. All branches are eligible for participation in the program, as are some reserves.
Unlike many other loan repayment programs, the benefit is paid directly to the lender or servicer of the student loan, rather than the individual loan holder.
Borrowers who are considering returning back to school after their service should be careful though, as participation can have an impact on future GI Bill eligibility.
The maximum benefit under the program is $65,000, but some branches impose lower limits. Those interested in this benefit should contact their recruitment officer for specific details and current recruitment incentives.
Active Duty Health Professions Loan Repayment Program
Those that work in the health fields are able to qualify for special loan repayment programs through the military. This includes doctors, nurses, optometrists, dentists, pharmacists and veterinarians. However, only those that are fully licensed in their field are eligible for this program.
The total benefits for the program depend upon your specialty and branch of service, but they can be as high as $120,000 in total or $40,000 per year. These funds may also be used to pay down private student loans, which is somewhat rare for student loan forgiveness programs.
Other Military Repayment Assistance
There are also a number of laws and programs that were put into place to assist members of the military with their debt.
Servicemembers Civil Relief Act (SCRA) Interest Rate Cap – The SCRA limits all student loan interest rates for active duty members of the military to 6%. This limit applies to both federal and private student loans. (Note: this applies only to debt incurred before your active duty start date. Consolidating or refinancing during active duty may not be eligible for the interest rate reduction.) Contact your loan servicer for instructions on how to apply for this benefit.
0% Interest – Anyone serving in a hostile area that qualifies for special pay, does not have to pay interest for up to 60 months on their federal direct student loans. This applies to all federal direct loans issued after October 1, 2008.
Additionally, there are a number of deferments and reduced documentation privileges available to members of the military. The Department of Education has a nice summary of the various military forgiveness programs and loan repayment privileges.
#9 Student Loan Forgiveness for Nurses
Nursing is another profession where the needs of society are not filled by the current staffing levels. As a result numerous programs exist specifically for nurses, aimed at getting more individuals into the profession.
Many nurses will find that they qualify for Public Service Loan Forgiveness due to their employer being either a government agency or an eligible non-profit, but the forgiveness programs available to nurses go beyond PSLF.
NHSC Loan Repayment Program
In order to qualify for forgiveness under this program, applicants must work at an NHSC-approved service site, located in, designated as, or serving a Health Professional Shortage Area (HPSA).
Those that do qualify will be eligible for up to $50,000 in student loan repayment assistance.
The icing on the cake for the NHSC Loan Repayment Program is that the benefit does not count as taxable income, which is very rare for these types of forgiveness opportunities.
Application information and eligibility details can be found on the HRSA website.
NURSE Corps Loan Repayment Program
The NURSE Corps Loan Repayment Program is for full-time nurses who work in a public or private nonprofit Critical Shortage Facility, which is a health care facility located in, designated as, or serving a primary care or mental health HPSA (Health Professional Shortage Area). Nurse faculty can also qualify if they are employed by an eligible public or private nonprofit school of nursing.
This program will pay 60% of outstanding student debt for nurses who make a two year commitment, and qualifying participants may get an additional 25% forgiven for a third year. For nurses with larger student debt levels, having forgiveness capped as a percentage of debt rather than a dollar limit could be really helpful.
Full eligibility details and an application can be found here.
Those interested in the differences between the NHSC Loan Repayment Program and the NURSE Corps Loan Repayment Program will likely find this handout helpful.
State Based Nursing Forgiveness Programs
Most states also offer some sort of student loan forgiveness program to attract nurses.
In some states, these benefits can exceed $100,000 in student loan forgiveness, but the amount forgiven and the requirements can vary greatly from one state to the next.
A good compilation of the various state programs can be found here, but a quick Google search for nursing information in your state is probably the best way to find up to date program availability and benefits.
Perkins Loan Cancellation
Like teachers, nurses are eligible to have up to 100% of their Federal Perkins Loans cancelled.
15% of Perkins Loans can be cancelled after years one and two, with 20% coming after years three and four. Finally, the remaining 30% can be forgiven after year five.
The Department of Education Perkins Cancellation page has some information on this program, but borrowers will probably need to reach out to their school or school’s Perkins Loan servicer for application details and eligibility information.
As word of the $1.5 trillion in US student debt spreads, more and more employers are taking advantage of the student debt crisis by creating programs to attract top talent. As the unemployment rate drops and competition for skilled employees grows, we expect to see more an more employer loan repayment programs.
Most employers cap student loan assistance on a monthly or yearly basis. This means most employers will not be able to pay off your student debt in full, but they may offer help with monthly payments.
If your workplace does not offer a program of this nature, the best way to present it to your boss might be to suggest a program as a way to attract top candidates for unfilled positions. Discussing creating a loan repayment assistance program may also be a useful tool in negotiating your salary.
One other important fact to keep in mind is that these programs are not tax advantaged like a 401(k) or health insurance plan (though that may change in the future). Employees taking advantage of employer assistance with student loans will have to pay taxes on this benefit.
Getting your student loans discharged in bankruptcy is a tough task, but it is an option for people in truly desperate situations.One common misconception about student loan debt is that it is impossible to discharge in bankruptcy. The reality is that student loans can be forgiven in bankruptcy proceedings, but the process is very difficult.
The first thing borrowers should know about student loan bankruptcy is that it works different than bankruptcy for all other kinds of debt. Mortgage, credit card, auto loans, and other consumer debts are all treated pretty much the same way in a bankruptcy proceeding. To get student loan debt forgiven in a bankruptcy, borrowers must prove some additional items.
Bankruptcy is governed by federal law and the standard that most borrowers must prove is called the Brunner Test.
The Brunner Test requires that the borrower prove the following:
- That the borrower cannot maintain, based on current income and expenses, a minimal standard of living for the borrower and dependents if forced to pay off student loans;
- that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and
- that the borrower has made good faith efforts to repay the loans.
For borrowers who think they can meet this difficult standard, it is probably worth reaching out to a few bankruptcy attorneys to investigate the possibility of bankruptcy for student loans.
Borrowers who were mislead by the school they attended may be able to have their federal student loans forgiven as part of the Borrower Defense Against Repayment.
If a Borrower Defense Against Repayment application is approved, the borrower can not only get their loans forgiven… they may also be reimbursed for payments already made on the student loans.
Given the large potential benefit available to borrowers, it shouldn’t be a surprise that getting a borrower defense application approved can be tricky.
In order to be successful a borrower defense applicant must show that: the school, through an act or omission, violated state law directly related to the federal student loan or to the educational services for which the loan was provided.
The Department of Education suggests that the following documents may be helpful in a borrower defense application:
- Documentation to confirm the school for which you are applying for borrower defense, your program of study, and your dates of enrollment—such as transcripts, enrollment agreements, and registration documents
- Promotional materials from the school
- Emails with school officials
- Your school’s manual or course catalog
Borrowers can find the necessary applications and more details on the Federal Student Aid Borrower Defense page.
When Forgiveness Options Fail
Qualifying for student loan forgiveness is great, but the vast majority of borrowers will not be able to have their debt forgiven.
For the most part, the forgiveness options are in place to help the borrowers in most need of help, and to encourage educated individuals to take less lucrative jobs that help society. If you don’t fall under either of those categories, student loan forgiveness could be a long shot.
Borrowers who are certain they will be paying back their loans in full can look to student loan refinancing as an option to reduce their spending. Refinancing debt will ensure that most forgiveness programs are off the table, but it can also dramatically reduce interest rates.
There are a number of refinance options:
|Lender||Interest Rates||Sign-Up Bonus||Loan Amounts||Application|
|2.63% – 7.75%||$150||$5,000 – No Max||Apply|
|SoFi Review: SoFi consistently offers the best actual interest rates to applicants. Combine that with SoFi's unique job placement program for borrowers and you have a winner.|
|2.68% – 8.12%||$150||$5,000 – $300,000||Apply|
|LendKey Review: LendKey partners with local banks and credit unions to provide their loans. The end result is competitive rates provided by local reputable businesses.|
|2.55% – 6.69%||Up to $350||$15,000 – No Max||Apply|
|ELFI Review: ELFI has the best interest rates around. Even though ELFI is new, it is the product of a regional bank that has been in business for decades.|
|2.80% – 7.02%||$150||$5,000 – No Max||Apply|
|Laurel Road Review: Even though Laurel Road does not advertise the lowest rates, they frequently offer the best rate to borrowers who shop around. Laurel Road also has a specialized program for medical professionals.|
|2.70% – 7.25%||$150||$5,000 – $500,000||Apply|
|CommonBond Review: CommonBond has quickly established itself as one of the top lenders available. The interest rates offered are among the best and customer satisfaction appears to be very high.|
Whether by qualifying for forgiveness or by refinancing, most borrowers are able to find some student loan savings if they chase down the right opportunity.