Many borrowers might think actually eliminating student debt in just a decade is a dream, but it’s a feasible goal.
That said, the road to forgiveness is paved with strict conditions and strategic planning. Let’s dive into the two primary programs that offer a path to wiping out your student debt in ten years.
Public Service Loan Forgiveness (PSLF): Debt Freedom for Public Servants
The Public Service Loan Forgiveness program remains a beacon of hope for those in public service roles, offering a route to loan forgiveness after ten years of service and qualifying payments. The key to PSLF is ensuring that your employment, loan type, and repayment plan meet the eligiblity requirements.
Recent reforms have aimed to streamline the process, correcting past administrative hurdles and expanding eligibility. This summer, the one-time adjustment is expected to further ease the path to forgiveness, potentially forgiving years of payments would have otherwise been deemed ineligible.
Sherpa Tip: Don’t leave your PSLF job too early. It’s vital to remain in a qualifying job not just during the period when making the 120 required payments, but also when you apply for forgiveness. Exiting your position too early can jeopardize your eligibility.
SAVE Plan: Quick Forgiveness for Smaller Debts
The Saving on A Valuable Education (SAVE) plan introduced a new forgiveness timeline that benefits those with smaller initial loan amounts. Borrowers starting with less than $12,000 in student loans can earn forgiveness in a decade. Each additional $1,000 borrowed adds a year to the forgiveness schedule, with a cap at 20 years for undergraduates and 25 for graduate students.
Decoding the $12,000 “Original Balance” Rule
This limit applies to your total original loan balance, rather than individual loans. Crucially, increases in your balance due to interest accrual or paused payments do not affect your original forgiveness timeline under SAVE.
Tax Implications of Forgiveness
PSLF offers tax-free forgiveness, a significant benefit for public servants.
For those under the SAVE plan, any loans forgiven before 2026 will also avoid federal taxes. Post-2025, there is reason for hope that future loan forgiveness won’t be taxed either.
Sherpa Tip: If you are facing a potential tax bill in the future, it is a good idea to start planning now. The best plan will account for the possiblity that you won’t get taxed, but have money set aside if you do get taxed.
As a borrower working toward SAVE forgivneess, my tax bill plan is to use a Roth IRA to give myself some flexiblity.
The Challenge with Private Student Loans
Regrettably, private student loans are excluded from federal forgiveness programs, with no option to convert them into federal loans. For these debts, the best strategy is refinancing for better terms and focusing on aggressive repayment.
As of September, 2024, the following lenders currently offer the lowest interest rates on private student loan refinancing:
| Rank | Lender | Lowest Rate | Sherpa Review |
|---|---|---|---|
| 1 |  | 4.84% | ELFI Review |
| T-2 |  | 4.89%* | Splash Financial Review |
| T-2 |  | 4.89% | Earnest Review |
Maximizing Forgiveness Benefits
To make the most of federal forgiveness programs, lowering your monthly payment maximizes the forgiven amount. This can be achieved by:
- Income Shielding: Contributing to retirement accounts can effectively reduce your taxable income and lower monthly payments under income-driven plans.
- Income Certification Timing: Carefully timing your income certification can help manage how much of your income is recognized for payment calculations. If you have an unusually high earning year, you can hide it from IDR calculations.
- Selective Tax Filing: If married, consider whether filing taxes separately could beneficially impact your repayment calculations by not counting your spouse’s income.
Final Thoughts
Understanding and managing student loan forgiveness can be tricky, but with some careful planning and a bit of effort, getting your loans forgiven in just ten years is a real possibility. Though it requires jumping through some hoops, pursuing loan forgiveness is a viable path and a resonable strategy.
For many, it is the most afforadable way to eliminate federal student loans.
