Student loans are a double-edged sword. They can be a massive burden on you for many years to come, or they can help you invest in a better future. If you have a student loan at the moment or you think about getting one in the future, you should learn more about what makes them unique.
The first thing you need to understand about student loans is that they usually can’t be discharged through bankruptcy. Simply put, this means that student loans are here to stay throughout your whole life. The only way to get rid of them is to pay them off, or if you are lucky, get student loan forgiveness.
When all of the conditions have been met, people with student loans can cancel their whole loans or part of the debt. This option is also known as Student Loan Forgiveness (SLF). Some of the criteria for qualifying for SLF include things like military service, volunteer work, medical help for people in need, and so on.
What’s really great about Student Loan Forgiveness is that this debt, when forgiven, isn’t looked as taxable income. Many other student loan discharge types are taxable. However, things are changing very often with these kinds of student loan discharges, and you need to keep up. It’s how you can increase your chances of getting approved for one.
If you don’t have a job yet, and you’ve graduated, consider looking for positions eligible for loan forgiveness. These positions will help you pay off your debt a lot faster and get valuable experience.
Defining Student Loan Forgiveness
Student debt is a big issue in the United States. Over 40 million people currently carry student debt, and Experian reports that their balance is, on average, around $30K. That’s why the US government has made exceptions for people to help them get rid of the debt.
Student loan forgiveness simply forgives a part or whole student loan. It works for federal loan debts only, and it can’t be used for private loans. All of this might sound like a fairytale, but only a small percentage of people qualify for loan forgiveness.
The requirements are really strict, but they aren’t all the same. It all depends on what kind of loan you have. In the majority of the situations, people who can get their student loan forgiven are the ones that work in public service positions and other similar jobs.
At the same time, there are also repayment plans which can also forgive a portion of the debt.
How Student Loans Can be Discharged
A lot of people have many misconceptions about discharging their student loans. If you want this to happen, you need to be affected by factors you can’t control. Almost all of these loans can be discharged in situations when:
- The borrower is disabled permanently
- The school was closed while studying
- Or, the school falsified or tampered with the loan qualifications
- There is a case of identity theft
- The borrower has died
- The school wasn’t able to refund the loan
These don’t include dropping out of college or students not being able to find a job after they graduate.
Six Ways to Get a Student Loan Forgiveness
As we mentioned earlier, there are multiple ways people can qualify for loan forgiveness. Here are 6 of the most common ways:
The most popular way to qualify for student loan forgiveness currently. It’s quite simple – if you work for 10 years in public service, you become eligible for loan cancelation. A few years ago, Obama announced the Public Service Loan Forgiveness Program (PSLF), and it grants loan forgiveness after 10 years or 120 payments.
If your Public Service Loan Forgiveness application is denied because some or all of your payments were not made under a qualifying repayment plan for PSLF, you might still be eligible for forgiveness through Temporary Expanded PSLF
It has a broad definition, and people who have local government employment, state, federal, some government entity, or a non-profit can all apply for forgiveness. The nature of the employment is irrelevant just as long the organization is tax-exempt.
Here are some examples of jobs that would fit into this category:
- Local, state, and federal government positions
- Work with military
- Emergency situation management
- Public health work
- Law enforcement
- Public safety work
- Teacher job
- Various education jobs
- And much more
The organization mustn’t be a partisan institution or labor union. These are not all the public service jobs that can apply for student loan forgiveness, and this is why you should check with the government representatives whether you can apply.
Applying for PSLF
The first thing every applicant needs to do is file out the Employee Certification form for PSLF and submit it. The form needs to be mailed to the US Department of Education. In case you’ve had multiple employers, you will have to send forms from all of them.
Your payments and other conditions will be checked to see if you meet the requirements. When you make 120 payments, you will be able to apply for student loan forgiveness.
Make sure to submit your Employment Certification Form for PSLF whenever you change employers and annually. That’s how you can know if your payments qualify you and whether you’re doing something wrong.
State Loan Forgiveness
A total number of 46 states in America have loan forgiveness programs. In most cases, these programs can’t clear your whole loan, but they can help you repay a good chunk of it more easily. The first requirement for state student loan forgiveness programs is to be a resident of the state.
In some cases, you will have to live in a certain part of the state to be eligible for the state program. At the same time, similarly to PSLF, these programs also require applicants to work in some fields. Every state has different programs with different requirements, and you need to check with yours.
Military Personnel Student Loan Forgiveness
These student loan forgiveness programs no longer exist. In the past, they were offered by each military branch separately with different conditions. However, they have all been replaced with a single program we mentioned earlier, the Public Service Loan Forgiveness.
Simply put, if you work in the military, you can apply for this forgiveness plan the same way as other people working in public service. However, in some cases, military personnel have even better conditions.
All of the graduates that become teachers working in secondary or elementary schools where kids from low-income families go can get a part of their Perkins Loan removed. With this program, you can remove 30% during the first two years, 40% for the next two years, and 30% for your fifth year alone.
Perkins and FFEL loans
can be consolidated and turned into federal loans. This way, you will have more forgiveness programs at your disposal. However, this should be done as early as possible because payments after consolidation count only.
When it comes to volunteering work, it all depends on the organization. For example, some organizations will give you cash that you can specifically use for repaying your loan. On the other hand, some will offer deferments for different types of loans such as:
At the same time, some organizations will give you portion loan cancelation, and this all differs from one organization to another. Some might give you cash when you’ve reached a certain amount of hours like VISTA: $4.725 after 1,700 hours. Other organizations will give you cash once you volunteered for some time AmeriCorps: $4.725 after 12 months.
Various law schools will forgive student loans if the graduates work at non-profit organizations or in public interest institutions. These programs can sometimes give complete forgiveness and, in other situations, will help you with your repayments, postponed payments, or lower interest rates.
All law schools that have these kinds of programs also include income limitations. They also offer detailed information about what kind of employment qualifies for these programs. Additionally, a lot of states offer loan repayment assistance to law students:
- South Carolina
- New York
- North Carolina
- New Hampshire
- New Mexico
- District of Columbia
These programs change each year, and the best way to see where you are at is to check the official website of the American Bar Association. Here you can find about all student loan forgiveness options for law students by state.
Public Service Loan Forgiveness Could be Canceled
In the heart of the presidential race of 2020, all the major candidates have talked about student loans and public service loan forgiveness. The current president of the US Donald Trump and his representatives have all announced that their plan is to cancel public service loan forgiveness.
As a part of the administration’s budget cuts to education, the loans will also take a blow. That’s why you should wait a bit before going all-in for public service loan forgiveness. On the other hand, if you plan on applying for one, do this as quickly as possible because it might become a part of history.
Bear in mind that this is focused on the public service loan forgiveness only. The administration isn’t planning to cut down on other forgiveness or payment programs.
Why Cancel Public Service Loan Forgiveness?
The current government administration believes that this program, in particular, is harmful because people are prioritizing certain jobs over others. The current job market in the US has around 7 million unfulfilled positions, and the administration thinks that one of the reasons is this kind of incentive.
Since student debt has become a great issue for many Americans and it keeps growing each year, a lot of people are choosing jobs and even colleges based on these programs. At the same time, some supporters of this move say that this will balance the needs of federal taxpayers and student borrowers.
It would also save the government a lot of money, which could be used for improving colleges and education altogether.
It Might Not Be as Bad as it Looks
This proposal for the cancelation of the PSLF program will impact students that get loans in 2021. This means that people who are currently using a program of this kind will be able to finish it until the end.
The Potential for Simpler Loan Repayments
With the reduction of student loan repayment plans, there is a chance for simplifying repayments and helping borrowers go more easily through the process. With federal student loan repayment, students can lower their monthly payments even with interest.
Student Loan Forgiveness Could be Changed
With income-driven repayment plans, undergraduate borrowers can get their federal student loans forgiven after making payments for 15 years. Undergraduates can get federal loan forgiveness at the moment after making payments for 20 years.
On the other hand, graduate school borrowers need 25 years. Still, borrowers might still have to pay for income taxes even if their amount is forgiven.
Will PSLF Survive?
This program has often been a punching bag for various politicians and congress. Even though Trump is planning on putting a motion in front of congress, there is no guarantee that it will be voted out. A lot of people rely on this program, and the chances are that the employment positions eligible for the program will just be narrowed.
No matter what the case is, the change won’t happen instantly. In case you are really worried about this, simply try and make payments for your student loans. No changes have been made yet, and there are only proposals made by Trump and his administration.