At some point or another, most student loan borrowers have had the same thought: How do I get out of this?
“That’s the number one question I get,” said Joshua R.I. Cohen, a consumer attorney who focuses his entire practice on student loans. He said it’s not that people want to shirk their responsibility; they just don’t want to be buried by it. They’re searching for a way to make their loans affordable.
One of those ways is student loans forgiveness, but it’s not available to everyone. Why? Because not everyone with student loan debt has the right kind of loans — or the right repayment plan, the right financial situation, the right job, and so on.
Based on the data currently available from the U.S. Department of Education, most student loans aren’t in a position to be forgiven: Only $505.6 billion, or 39%, of the roughly $1.3 trillion federal student loan portfolio (which includes loans not yet in repayment) is made up of loans that meet at least one requirement for the most common loan forgiveness programs. Even so, not all the borrowers who hold that debt will qualify for forgiveness. But if you meet a specific mix of criteria, you can apply for it.
What Is Student Loan Forgiveness?
People use the term “student loan forgiveness” to reference several different programs, but they all have the same result: A borrower ends up paying less than what they owe on their student loans. This is also called student loan cancellation or discharge. (While forgiveness, cancellation and discharge aren’t exactly the same thing, the terms are sometimes used interchangeably, and there’s a lot of overlap.)
For the most part, loan forgiveness is limited to the federal student loan world, which makes up about 92% of outstanding student loan debt in the United States, according to data from the Federal Reserve and the Education Department. (If you have private student loans, you can skip to later in this article where we talk about bankruptcy and disability discharge, because the rest of this doesn’t apply to you.)
So, what are the legitimate student loan forgiveness options offered by the government? There are several. We’ll start with the most widely available.
Income-Driven Repayment Plans With Forgiveness
There are four repayment plans for federal student loans through which a borrower could get some of their unpaid student loans forgiven: income-based repayment (IBR), income-contingent repayment (ICR), Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE). For most people, enrolling in one of these four programs is their best shot at loan forgiveness, but of the $1.29 trillion in outstanding federal student loan debt, only $308 billion of it (23.9%) is being repaid through one of these programs.
Here’s how each of them work.
Income-Based Repayment: You must have a high debt-to-income ratio to enroll in IBR. Both Direct loans and Federal Family Education Loan Program (FFEL) loans can be repaid through IBR, with the exception of loans to parent borrowers. (Not sure what kind of loans you have? Log into the National Student Loan Data System or your student loan servicer to find out.) Any remaining balance on your student loans will be forgiven after 25 years, unless you’re a new borrower as of July 1, 2014, in which case your unpaid balance will be forgiven after 20 years. You may have to pay income tax on any forgiven amount. (You can read more about taxes on canceled debt here.)
Income-Contingent Repayment: Any Direct loan is eligible for ICR, including loans to parent borrowers, given they are consolidated with a Direct consolidation loan. Any remaining balance on your student loans is forgiven after 25 years. You may have to pay income tax on the forgiven balance.
Pay As You Earn: You must have a high debt-to-income ratio, have a Direct loan, be a new borrower as of October 1, 2007, and have received a Direct loan disbursement on or after October 1, 2011, to enroll in PAYE. Any remaining balance on your loan will be forgiven after 20 years, at which point you may have to pay income tax on that balance.
Revised Pay As You Earn: REPAYE is available to anyone with a Direct loan, with the exception of borrowers who have parent PLUS loans or Direct consolidation loans that included a parent PLUS loan. If you borrowed all the loans under REPAYE for undergraduate study, your remaining balance will be forgiven after 20 years. If you used any of the loans for a graduate or professional degree, you’re eligible for forgiveness after 25 years. You may have to pay income tax on the forgiven balance.
Forgiveness isn’t automatic — once you get to the 20- or 25-year mark, you have to apply for it. (You also have to apply for these programs in the first place, so if you’re interested in doing so, talk to your student loan servicer.)
Is an Income-Driven Plan Right for Me?
At the moment, there are no caps on how much you can get forgiven through these repayment programs, but there’s always a possibility Congress could change that. Realistically, any of these programs could change, so if you’re enrolled in one, keep tabs on executive orders or legislation that could affect them. (For example, PAYE and REPAYE resulted from executive orders signed by President Barack Obama.)
Keep in mind that after about two decades of making loan payments, you may not have a balance left to forgive, especially if your income significantly increases. Each year, you have to recertify your income level and family size to remain on an income-driven repayment plan, so your monthly student loan payment could change each year. It’s also important to know dragging out repayment that long could end up costing you more than it would have to go with the standard 10-year repayment plan, even after forgiveness. Of course, if your monthly payments under the standard repayment plan aren’t affordable, enrolling in an income-driven plan is the way to go. Above all, it’s important you stay current on your student loans so you don’t suffer the credit damage that comes with delinquency or default, not to mention the stress of potential late fees and collection calls.
Pro tip: Your student loans have a significant effect on your credit score. You can see just how much by checking two of your credit scores for free on Credit.com.
Income-driven repayment plans offer forgiveness to the widest variety of borrowers. Outside these plans, you have to meet increasingly specific criteria to qualify for loan forgiveness.
Public Service Student Loan Forgiveness
This is what it sounds like — you can get your student loans forgiven by working a public service job — but there’s more to it than that.
First of all, you have to have a Direct loan, which only includes 73% of outstanding federal student loan debt. (If you don’t have a Direct loan, you may be able to qualify for PSLF by consolidating your debt with at Direct consolidation loan.) Beyond that, your Direct loan must be enrolled in a qualified repayment plan. Those are the 10-year fixed (aka standard) repayment plans, IBR, ICR, PAYE or REPAYE. These PSLF-eligible plans account for 50% ($476.3 billion) of Direct loan debt, or about 37% of all federal student loan debt.
Here’s where things get really tricky: Many of the people who have some of that $476.3 billion in debt won’t qualify for PSLF. First of all, you must have a full-time job (at least 30 hours a week) at a qualifying employer at the same time you’re making qualifying student loan payments (more on that in a minute). A qualifying employer isn’t easy to define — there’s no data on how many employers offer work (and how many jobs are available) that qualify for PSLF — but generally, they can include the following:
Any government organization, as long as it’s not a partisan political organization
Peace Corps or AmeriCorps
The Department of Education also lists “other types of not-for-profit organizations that provide certain types of qualifying public services” in a dozen categories, including law enforcement, education and public health as qualifying. Basically, you might not know if your employer qualifies until you do the paperwork, which the Education Department recommends you do regularly in order to track your progress toward PSLF.
Speaking of paperwork: There’s a lot of it.
In order to get PSLF, you have to make 120 qualifying monthly payments (which adds up to 10 years). A qualifying monthly payment means the payment was made after October 1, 2007, under one of the aforementioned repayment plans, within 15 days of your due date and for the full amount due at the same time you were working full-time for a qualifying employer.
Any payments you make in a period during which you are not required to make a payment (while you’re in school, grace period, deferment, forbearance or default) don’t count. So that’s at least 10 years of working a public service job while also making very specific student loan payments. Your qualifying payments don’t have to be consecutive (so you may have to work more than 10 years in public service), but still, that’s a lot of stuff you have to get right to qualify.
Is PSLF Right for Me?
“I wouldn’t recommend that you decide to go into an occupation specifically to get forgiveness because it really is a long-term commitment,” said Mark Kantrowitz, an expert on student loans and publisher of college- and scholarship-search site Cappex. Additionally, “you’re putting a lot of faith in the federal government to live up to their promises.”
This is a good time to bring up the importance of keeping good records, no matter what you’re trying to do with your student loans, because student loan servicers aren’t known for impeccable record-keeping. Cohen said he tells people to keep the paperwork associated with each one of the 120 payments: Both the paystubs showing you worked in a qualifying job that month and the statement from your student loan servicer showing you made a qualifying payment in the same month.
“There are too many ifs, and I know they’re going to throw the burden on the borrower,” he said. “They always do.”
Theoretically, the student loan servicers will have all the information on your payments, so all you’d need to do is submit the Employer Certification for Public Service Loan Forgiveness form to show you met the employment requirement at the time of your payments. But within the last decade, some student loan servicers have folded, and it’s common for a borrower to have their loans sold to another servicer. Again, these companies don’t have a great reputation for meeting consumers’ needs: As of January 2017, the Consumer Financial Protection Bureau has received more than 3,500 complaints about federal student loan servicers. It only started accepting such complaints in February 2016.
Can I Count on PSLF?
Given that the earliest anyone will be eligible for PSLF is October 2017, no one knows how well the paperwork is being tracked or how the process of applying for PSLF will go. We reached out to FedLoan, the servicer charged with managing PSLF, to ask about this, and they referred us to the Department of Education. The Department of Education did not respond to questions about how PSLF paperwork and qualifying payments have been tracked or when the application for PSLF will be available.
“There are so many ways you might get tripped up by this process,” Kantrowitz said. “Unless you’re really committed to it, you’re not going to enjoy working for 10 years just to get your loans forgiven.”
Based on his experience with other student loan programs, Cohen isn’t optimistic about the ease of getting PSLF, “You can see the writing on the wall — I think it’s going to be atrocious.”
Teacher Loan Forgiveness
While income-driven forgiveness and PSLF have yet to be tested, teacher loan forgiveness is comparatively well-established. You have to meet a long list of requirements, but generally, teachers at elementary or secondary schools serving low-income families can qualify for up to $17,500 of loan forgiveness on some Direct and FFEL loans.
Perkins Loan Cancellation
There’s $7.9 billion in outstanding Perkins loan debt — that makes up less than 1% of all outstanding federal student loans. Still, if that small sliver of debt includes your loans and you have the right kind of job, you can get up to 100% of your Perkins loans forgiven. Many teaching jobs can qualify you for Perkins loan cancellation, as well as public service jobs.
Employer Loan Repayment Assistance
Student loan repayment assistance is an emerging trend in employer benefits. It’s something to watch out for if you’re job-hunting or negotiating benefits, but it’s not something to bank on when you borrow. While you’re looking at local options for forgiveness, see if your state has a program.
“There are lots of small programs, and it’s very hard to find which ones you’re eligible for,” Kantrowitz said. There have even been cities who’ve tried to attract residents by offering to pay their student loan debts.
Can I Discharge My Student Loans Through Bankruptcy?
You may have heard you can’t get your student loans discharged in bankruptcy — that’s not true.
“Is it difficult? Yes,” Cohen said. “Is it impossible? No. Is it expensive? Maybe.”
In order to get your loans discharged in bankruptcy, you have to prove that repaying them would cause you “undue hardship,” and because income-driven repayment plans exist, that can be difficult to prove.
“Private loans are easier to win, because they don’t have an IBR defense,” Cohen said. “They can’t argue and say, ‘Oh we’ll give them a flexible payment option,'” because those typically don’t exist for private student loans.
Of course, hiring an attorney to argue your case may not seem feasible, but the alternative could be more expensive: If your lender sues you over unpaid student loan debt, they could win a judgment against you and garnish your wages. As far as federal loans go, the government doesn’t have to sue you to garnish your wages (including Social Security and Social Security disability income) or seize your tax refund, so you may want to see if you can prove undue hardship to a bankruptcy court.
The government and some private lenders will also forgive your loans if you’re totally and permanently disabled. Cohen said it’s a common misconception for people to think they can automatically get disability discharge if they’re on Social Security disability income (SSDI) or that they can’t get disability discharge because they’re not on SSDI.
“SSDI is not a bearing on any of this — the question is are you totally and permanently disabled? Will a doctor verify that?” Cohen said.
Loans are also dischargeable upon a borrower’s death.
Any Other Circumstances Apply?
We’ve now reached the least common of the limited ways you can get out of repaying your student loans. Did your school close before you could finish your program? Apply for a closed school discharge. Did someone steal your identity and fraudulently take out student loans in your name? Prove it, and you can get those loans discharged. Do you have a high school diploma or GED? No? Then your school probably shouldn’t have given you a student loan in the first place — there’s a thing called false certification discharge for that. There are a few other situations in which you can argue you shouldn’t have to repay your student loans, but they’re rare, and you have to submit an application to prove you deserve it.
What About Obama Student Loan Forgiveness?
That’s not really a thing. It’s a term most often used by shady debt relief companies that charge fees to (mis)manage your loans or fill out paperwork you can do yourself. Sometimes these operations are just identity thieves trying to dupe people into sharing their personal information.