Article Updated July 3, 2018
If you feel burdened under the weight of student loan debt, we have some good news: you may be able to get those student loans forgiven. In 2017, the Consumer Financial Protection Bureau released a report estimating that up to one in four Americans may be eligible for the Public Service Loan Forgiveness program, but only a small percentage are actually using it.
Most student loan forgiveness programs aren’t a secret—but it might seem like they are because so few people take advantage of them. If you’d like to wave a magic wand and make your student loan debt disappear, here are five ways to help make that happen.
Difference Between Forgiveness, Cancellation, and Discharge
While the terms forgiveness, cancellation, and discharge may all mean the same thing, they are actually used in different ways. Federal student loan forgiveness or cancellation typically occurs when you no longer have to make the payments on your student loans due to your job. However, a discharge will occur in the case of a disability or other circumstances such as the closing of the institution where you received your loans.
Loan Forgiveness Programs for Health Care Professionals
If you’re a doctor or a nurse, you could get a significant amount of your student loans forgiven in exchange for your service. Here are a couple of loan forgiveness options and programs to check out.
- The Health Professionals Loan Repayment Program:This program is for health-care professionals who serve in the military. You could get up to $50,000 of student debt forgiven for each year of military service.
- Maine Dental Loan Repayment Program:Get up to $20,000 of your student loan debt paid for if you’re a dental professional who sets up shop in an underserved area in Maine. Other states offer similar programs for medical professionals in underserved areas.
Perkins Loan Cancellation and Discharge
Those who took out a Perkins loan to help pay for college and work in a qualifying career could have their entire debt wiped out after five years. All Perkins loan borrowers are eligible for potential loan cancellation or forgiveness. Here’s a look at some of the professions that qualify.
- Active Duty Military Service:If you served in a hostile fire or imminent danger pay area before August 14, 2008, you could have up to 50% of your loans forgiven. Those who began serving on or after that date may qualify for 100% loan forgiveness.
- Full-Time Public Service: Police officers, firefighters, and other law enforcement personnel may be able to have 100% of their loans and student debt forgiven. Attorneys that work in a community or federal public defender organization may also qualify for total loan forgiveness.
- Educators:Teachers of certain subjects, special education teachers, and teachers serving low-income students may all be eligible for loan forgiveness up to 100% of the loan. Librarians and speech pathologists in Title I schools may also be eligible for forgiveness of federal student loans.
Teacher Loan Forgiveness Programs
There are a number of loan forgiveness options available for teachers who work in underserved areas. Some are state-specific, and others are federal programs. Find out if you qualify for either of the federal programs for teachers.
- Teacher Cancellation:As noted above, teachers who work full-time at a low-income school may be able to have their Federal Perkins Loan canceled. This option is also available to teachers of certain subjects like math, science, or bilingual education.
- Teacher Loan Forgiveness:This program was designed to encourage people to enter the education field. If you’ve been a full-time teacher for five consecutive years in a designated school or agency, you may be able to have up to $5,000 of Direct and Stafford loans forgiven. Secondary teachers who teach math or science, as well as special education teachers in elementary or secondary schools, may have up to $17,500 of Direct and Stafford loans forgiven. Unfortunately, PLUS loans are not eligible for this forgiveness program.
Forgiveness Programs for Volunteering
Some federal student loan forgiveness programs are related to volunteer work instead of your nine-to-five profession. If you’ve got a penchant for community service, then you might be able to get a little help with your student loans from these organizations.
- AmeriCorps and VISTA:When you volunteer for AmeriCorps or VISTA (Volunteers in Service to America), you can qualify to suspend your student loan payments for the duration of your service. You can also earn time that will help you qualify for the Public Service Loan Forgiveness Program.
- Peace Corps:If you want to volunteer across the globe, the Peace Corps can help you make a difference and move you closer to paying off those student loans. Volunteers receive forbearance of loan payments during their service, and they earn over $8,000 of readjustment allowance and partial Perkins loans cancellation upon completing their service.
Total and Permanent Disability Discharge
While no one plans to be disabled, it’s reassuring to know that student loan help is available if you have a terrible accident or become ill. In the worst cases, your entire student loan debt can be wiped out, eliminating this extra worry during an already trying time. There are three ways to demonstrate that you are “totally and permanently” disabled.
- Military-Related Disability: Veterans can qualify if the U.S. Department of Veterans Affairs (VA) has determined that you cannot work because of an injury incurred during your military service.
- Social Security Disability:People who receive Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) may also qualify to have their student loans discharged.
- Medical Disability:If a doctor determines that you’re unable to work due to a mental or physical disability, then you may be able to get your student loans discharged. The disability has to have lasted for more than 60 months or be expected to last for more than 60 months.
Income-Based Repayment Plans
Income-Based Repayment Plan, otherwise known as an income-driven repayment plan or income-contingent repayment plan, is when your monthly loan payment is set at an amount that can be affordably paid each month.
Although federal student loans may be forgiven after twenty-five years or so of repayment, current rules are stating that the forgiven amount of a student loan borrowers debt can actually be taxed as if it were income.
This means that borrowers of student loans may actually end up owing the IRS as much as 25% of the total amount of the forgiven loan and this does not include any state taxes there may be.
An income-based repayment plan will help cover interest on the student loans which will decrease their balance each month, and this means that the debt will most likely be paid off well before the forgiveness is in play.
What to Remember About Student Loan Forgiveness
Student loan forgiveness and other federal forgiveness programs are free through the Department of Education. However, there may be other costs you will have to consider along the way.
Even though the student loans are forgiven, they may still be taxable. For example, a loan that had been discharged through the Public Service Loan Forgiveness program is not taxable. However, debt forgiven through an income-driven repayment plan is taxable.
Additionally, you want to be wary of debt relief companies that say they can get rid of all your debt after you pay them ridiculously high upfront fees. Many scams float around regarding student loan forgiveness. Therefore, you should only go through a legitimate government program as defined above.
Also, remember, it is free to apply for these forgiveness programs.
The Bottom Line
If you’re having trouble paying off your student loans, it’s important to find a workable solution, so you don’t default on them. Even if you file for bankruptcy, it can be difficult to have your student loans canceled and falling behind on your payments can hurt your credit and may even lead to wage garnishment.
If you’re worried that your student loans might be affecting your credit, get a free credit report so you can see exactly what’s going on. Get your free credit score now to make sure your student loans aren’t getting you in trouble.
Student loan forgiveness programs are not an instant solution. For example, one important thing to note is that if you do have your student loans forgiven, you will then owe taxes on the amount forgiven. This is because the IRS counts forgiven student loans as income.
So, while you might be able to escape your student loans, you should still budget to pay the associated taxes. But loan forgiveness programs can help you rebuild your financial peace of mind. Most people don’t realize that they might qualify for a student loan forgiveness program.
Don’t end up in a tough situation where you risk default without looking into the options that are available.
If you’re concerned about your credit, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.com’s free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter grades—plus you get a free credit score updated every 14 days.
More on Student Loans:
- How Student Loans Can Impact Your Credit Score
- 6 Smart Ways to Pay for College in 2017
- Strategies for Paying Off Student Loans
Image: Jacob Ammentorp Lund