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What Is Student Loan Forgiveness and How Do I Qualify?

Student loan forgiveness is the process of discharging or canceling student loan debt, typically after you meet certain requirements.

Unlike debt settlement or bankruptcy, where some or all of certain types of debt can be discharged, student loan forgiveness doesn't hurt your credit and can be an excellent way to get help paying back what you owe. Here's everything you need to know.

How Do Student Loan Forgiveness Programs Work?

There are a few different types of student loan forgiveness programs student loan borrowers can take advantage of, but they only apply to federal student loans. Each program has its own set of requirements and how much forgiveness it offers.

Public Service Loan Forgiveness

The Public Service Loan Forgiveness program (PSLF) is designed to help college graduates who work for a government agency or eligible nonprofit organization. To qualify, you must:

  • Get on an income-driven repayment plan and make 120 qualifying monthly payments.
  • Work full time for a U.S. federal, state, local or tribal government or an eligible nonprofit.
  • Have federal direct loans (if you don't, you can consolidate your student loans through the direct loan consolidation program).

Once you meet all of the requirements for PSLF, the remaining balance of your loans will be fully forgiven. What's more, the canceled amount won't be considered taxable income, which isn't a guarantee with all forgiveness programs.

Income-Driven Repayment Plans

Income-driven repayment plans are available for all federal student loan borrowers, though the plans you're eligible for can vary based on your loan type and financial situation.

Regardless of which plan you choose, your monthly payment may be reduced to 10% to 20% of your discretionary income, and your repayment term will be extended to 20 or 25 years. After the end of the repayment period, your remaining balance will be forgiven by the Department of Education.

The only catch with this forgiveness option is that the canceled debt will be recorded as taxable income, and you'll need to plan for that when you file your tax return.

Teacher Loan Forgiveness

If you're going into education, you may qualify for the Teacher Loan Forgiveness program, which caps your forgiveness potential based on the subject area you teach.

To qualify for forgiveness under this program, you must:

  • Be employed full time by an elementary school, secondary school or educational service agency that serves low-income students for at least five years.
  • Have at least a bachelor's degree and full state certification as a teacher (you'll be disqualified if your certification or licensure requirements waived on an emergency, provisional or temporary basis).
  • Have direct or federal Stafford loans.

If you meet these and other requirements, you can qualify for up to $17,500 if you teach math or science in a secondary school or special education at all levels. All other teachers can qualify for up to $5,000 in forgiveness. Like the PSLF program, this benefit will not be taxed.

What Are the Benefits of Student Loan Forgiveness Programs?

Student loans can be financially crippling for many college graduates, so qualifying for a forgiveness program can make a huge difference in eliminating some or all of that burden. Also, two of the programs allow for reducing your monthly payments based on your income, so it can also relieve current budget issues.

Even if you only qualify for $5,000 in student loan forgiveness through the Teacher Loan Forgiveness program, that saves you thousands of dollars in principal and interest payments.

Are There Downsides to the Student Loan Forgiveness Programs?

Each student loan forgiveness program has drawbacks, and it's important to understand them before you start the process.

With PSLF, for instance, you may be giving up a higher income you might have earned in the private sector by choosing to work for a government agency or nonprofit. You could run into the same issue with the Teacher Loan Forgiveness program if a school in a low-income area pays teachers less than other schools in the area. So in chasing after forgiveness, you could be leaving more money on the table in other ways.

Also, the PSLF program requires you to make 120 qualifying monthly payments, which means it'll take you at least 10 years to qualify. The income-driven repayment plans are even more demanding, requiring you to make payments for 20 or 25 years.

Finally, if you pick an income-driven repayment plan, your forgiven balance will be taxable, which could cause problems with the IRS if you can't afford to pay the bill.

Where to Find Student Loan Forgiveness Programs

All three student loan forgiveness programs are available through the U.S. Department of Education. Depending on which program you're looking at, make sure to read more about Public Service Loan Forgiveness, income-driven repayment plans and Teacher Loan Forgiveness to find out if you qualify and whether it's worth it for you.

Also, each program has fine print that could cause you to lose eligibility if you're not careful. So read through the program's terms to make sure you don't get an unpleasant surprise when you're expecting the cancellation.

How to Get Help With Your Student Loans

Unfortunately, student loan forgiveness programs aren't available for everyone, and even if they are, they aren't always the right fit. Fortunately, there are some other ways to get help with student loans if you're struggling:

  • Deferment and forbearance: Both federal and private loans are eligible for deferment and forbearance, though terms can vary by lender for private loan borrowers. You typically need to show evidence of financial hardship to get approved, but if you do, your lender or servicer will pause your payments for a period as you get back on your feet.
  • Change your repayment plan: Even if you never reach 20 or 25 years—your payments are recalculated based on income and other factors every year—an income-driven repayment plan can still make your payments more affordable when you need it right now. There are also other repayment plans for federal borrowers that can reduce your monthly payments, so consider all of your options.
  • Refinance your student loans: Student loan refinancing is the process of replacing one or more existing student loans with a new one through a private lender. If your income and credit are in great shape, you may be able to get a lower interest rate than what you're paying now. You may also have the option to extend your repayment term. Both actions could help reduce your monthly payments.
  • Student loan repayment assistance programs: Many states and federal agencies offer loan repayment assistance programs. These programs don't count as forgiveness because they're not coming from the Department of Education. But if you're a service member, teacher, health care professional or in the legal field, research your options. Also, some private employers also offer student loan repayment assistance as an employee benefit. Check with your employer to see if it's an option now or in the future.

Maintain Good Credit as You Pay Down Student Loan Debt

Paying off student loans can take time, even if you're getting help. As you work on tackling your student debt, it's important to make building a positive credit history a priority.

Check your credit score regularly to make sure you're on the right track. If your score isn't where you want it to be, review your credit report and monitor your credit regularly to see if you can make any changes to your credit habits to improve your score. Also, make it a goal to make all your monthly debt payments on time, including your student loans.

While your credit score may not impact your current student loans, it can give you more options with student loan refinancing. Also, it can help you obtain affordable financing when you try to apply for a credit card, buy a car or home or start a business.