Who Qualifies for Student Loan Forgiveness?

Young couple celebrating while reviewing finances.

The topic of student loan forgiveness is frequently in the news as public officials debate and roll out new ways to help millions of student borrowers cope with repaying their loan balances.

As of late 2021, more than 43 million Americans owe an average of $39,351 in student loans. If you are one of them and struggling to make your loan payments, you'll want to understand what options are available for student loan forgiveness and how to find out if you qualify.

What is student loan forgiveness?

The term “loan forgiveness” means the borrower is no longer required to repay some or all of their loan. Eligibility is usually determined by the type of job the borrower holds and the type of student loan they have.

Student loan forgiveness is generally a component of an assistance plan for borrowers who cannot make payments on the standard, 10-year repayment plan that’s part of their loan agreement. Typically, a borrower will pay the least in interest — and repay their loan the fastest — by following their 10-year standard plan. You can save money and pay off the loan even faster by putting more money, such as a tax refund, toward your student loan.

If you cannot make your loan payments and want to explore repayment options, visit studentaid.gov and use the loan simulator to input your situation and see loan repayment options. The loan simulator will calculate estimated payments for all the federal repayment plans for which you are eligible. Once you have considered the pros and cons of each option, you can determine the best fit and enroll if you would like to proceed.

How to get federal student loans forgiven

The U.S. government offers several student loan forgiveness programs for federal student loans, and each program has different eligibility requirements. These programs are not automatic. It’s up to you as the borrower to identify what program you may be eligible for, then work through enrollment requirements.

Teacher Loan Forgiveness Program

This program forgives principal up to $17,500 on certain federal loans after borrowers have taught for five complete and consecutive years in low-income schools. Loan forgiveness amounts are either $5,000 or $17,500 depending on the teaching field and other criteria. Teacher Loan Forgiveness is not taxable in the year forgiven under current IRS rules.

Public Service Loan Forgiveness Program

This program is designed to help borrowers who have large student loans but earn less working in the public service or for 501c3 nonprofits than they could earn in other sectors. For those who qualify, the PSLF program forgives the remaining balance on certain federal loans after borrowers have made 120 on-time payments on a qualified repayment plan. However, whether a borrower will have a loan balance after making 120 payments depends on many factors, including their income and the size of their loan debt; some borrowers may not have a balance left to forgive.

The PSLF program has many variables, including the types of federal student loans you have, the repayment plan you selected, and the type of job you hold. PSLF forgiveness is not taxable in the year forgiven under current IRS rules.

  • Learn more about the Public Service Loan Forgiveness Program, including eligibility requirements and whether you qualify.
  • Use the loan simulator on studentaid.gov to determine whether PSLF may be a good option for your circumstances.
  • If you are considering applying for PSLF or wonder if you qualify and you have been making payments on your student loan for some time, take time to review the PSLF waiver information. The U.S. Department of Education recently announced changes that could help more borrowers qualify for PSLF. The waiver program is only available through Oct. 31, 2022, so applying now is a good strategy, even if you aren’t sure if you will complete the PSLF process.

Perkins Loan Cancellation

Prior to 2018, universities extended Perkins Loans to students with exceptional financial need. Perkins Loans are no longer offered, but borrowers continue to make payments on their balance. These borrowers may qualify for Perkins Loan cancellation based on their profession and a formula that forgives a certain percentage of the loan balance for each year of service. Cancellation of a Perkins Loan typically forgives up to 100 percent of the loan balance over 4-5 years of employment or volunteer service in fields including teaching, medicine, and law enforcement.

Income-driven repayment forgiveness programs

The federal government offers several income-driven repayment plans for various types of federal student loans. These programs are designed for borrowers who have low salaries relative to their student loan balances and don’t earn enough to make payments under a standard repayment plan.

Under an income-driven repayment forgiveness plan, a borrower makes lower payments for 20 or 25 years (depending on the plan and types of loans). At that point, any remaining loan balance will be forgiven. However, making payments for 20 or 25 years may mean that the total amount you repaid is significantly more than what you would have paid on the standard plan. In addition, the amount forgiven is generally taxable income under current IRS regulations, although the American Rescue Plan provisions make discharge of remaining balances exempt from taxation through 2025.

Forgiveness plans for certain professions

There are state and federal plans that assist in repaying or forgiving student loan debt for certain professions. Several programs provide loan repayment or forgiveness for military service for those in medical and legal professions. In addition, some state programs provide partial repayment of federal and/or private loans for borrowers in medical, legal, and teaching professions.

Are forgiveness programs available for private student loans?

Private loans are a contract between the lender, such as a bank, and the borrower. In general, private student loan servicers have not offered loan forgiveness. Some may offer loan short-term forbearance – a temporary postponement or reduction in your payments – but may charge you a fee. To explore what’s possible, contact your private student loan servicer to discuss options.

Some employers or state grants or programs may provide repayment assistance for private loans. To find out, check with your employer and the student financial aid agency in your state.

What student loan forgiveness proposals are under consideration?

Given the size and scope of student loan debt in the U.S., public officials are continuing to review options for providing relief. For example, on Oct. 6, 2021, the federal government announced a temporary expansion of the PSLF program to allow borrowers to receive credit for payments that previously did not qualify for the program.

On Nov. 11, 2021, U.S. Secretary of Education Miguel Cardona noted that recent reforms to the forgiveness process would result in over 30,000 veterans and service members seeing an estimated $2 billion in student loans forgiven in the immediate future. These reforms include automatically crediting service members for their years of service (removing the need to complete and submit paperwork) and expanding the credit to include the time when loans were in deferment or forbearance due to active military service.

For income-driven repayment options, the U.S. Department of Education is reviewing the implementation of the Expanded Income Contingent Repayment Plan, but details are not yet available.

Where can I check for updates on student loan forgiveness?

Always check studentaid.gov, run by the Office of Federal Student Aid within the U.S. Department of Education, as the most accurate and authoritative source of information and updates about federal student loan forgiveness. Many private websites provide information, but their details may not be correct or up-to-date, and those organizations may be selling services related to student loans.

For information and updates about state programs for student loan forgiveness, check the student financial aid information website for your state.

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Looking for relief in your budget? If you’re struggling to balance student loan payments against your other expenses, talk to the budgeting experts at MMI. We can help you pay down credit card debt, cut your expenses, and breathe a little easier at the end of the month.

Tagged in Advice for students, Debt strategies, Reducing expenses

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Amy Lins is Vice President of Customer Success at MMI and leads the development of its organizational financial wellness curriculum and services.

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