The Top Federal and State Loan Forgiveness Options
If you are dealing with the burden of overwhelming student loans, we’re here to help you determine if you qualify for a student loan forgiveness program.
Generally, most federal student loans can be discharged under the following circumstances:
- Death of the borrower: A death certificate must be submitted in case the borrower dies for the loan to be discharged.
- Total and permanent disability of the borrower: You are entitled for debt cancellation in the unfortunate event that you become permanently disabled and are unable to work.
- Closed school discharge: Your loans can be discharged in the event that your school closes. You must have been enrolled or left the school within 120 days of the time the school closed without receiving a degree.
- Use of identity theft when securing the loan
- Failure of the school to refund required loans to the borrower
Public Service Loan Forgiveness (PSLF) Program
The PLSF program grants complete loan forgiveness to many borrowers who are working in the public sector. This includes public school teachers, non-profit employees, Peace Corps Volunteers, government employees, and public nurses.
Under PLSF, a borrower can qualify for 100% loan forgiveness after 120 on-time payments. Direct Subsidized and Unsubsidized loans, Direct PLUS loans, and Direct Consolidation loans all qualify for PLSF. FFEL (Federal Family Educations Loan) and Federal Perkins Loan are eligible once a borrower consolidates them first through a Direct Consolidation Loan.
You can qualify for PLSF if:
- You work full time at a qualified public or government agency
- You fill out and submit the Employment Certification for Public Service Loan Forgiveness form
- You’ve made 120 on-time payments to a qualifying repayment plan, such as an income-based repayment plan
- You’ve consolidated your student loans to ensure they qualify
Income-Driven Repayment Plans Student Loan Forgiveness
Income-driven repayment plans are designed for borrowers having trouble paying their loans during the standard 10-year period. Under these types of programs, borrowers can sometimes become eligible for forgiveness after making payments for a certain time period. The following are some of the income-driven repayment plans available:
Income-Based Repayment or IBR: Under IBR, your monthly payments should be at most 15% of your discretionary income. In some cases, borrowers become eligible for loan forgiveness after 20 to 25 years of making qualified payments. One downside of this program is that the amount forgiven on these loans can be taxed by the IRS.
Pay as You Earn or PAYE: Under PAYE, your monthly payments should be around 10% of your discretionary income. After 20 years of consistent payments, you could become eligible for loan forgiveness.
Income-Contingent Repayment or ICR: The ICR program adjusts your student loan payments each year based on your gross income. Once you’ve made 25 years worth of on-time payments, you may be eligible for loan forgiveness.
State-Sponsored Student Loan Forgiveness Programs
There are now a number of states offering debt relief programs to help graduates burdened by student loans. Examples include the following:
- California State Loan Repayment Program
- New York State Young Farmers Loan Forgiveness
- Ohio Dentist Loan Repayment Program.
One of today’s biggest modern financial crises is student loan debt. As of 2018, Americans owe a total of 1.48 trillion in student loans and about 1 in 4 Americans are carrying student loan debt.