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Student Loan Forgiveness: How It Works & Available Programs Overview

At some point, you may have heard someone talk about student loan forgiveness, or you may have heard about it on the news or online. You may have also heard about President Joe Biden’s cancellation of nearly $10 billion in student loans since taking office. This affects thousands of student loan borrowers.

Student loan forgiveness totals about $1.5 trillion, up from $250 billion in 2004, according to Brookings. Student loans represent the second largest slice of household debt after mortgages and represent more than credit card debt as well. A large population of Americans — 42 million, or about one in every eight individuals — carries student loan debt.

So, can you get out of repaying part or all of your federal student loan debt?

Biden’s student loan forgiveness policies have focused on student loan borrowers with federal student loan debt. However, the Biden administration also gave relief to student loan borrowers with a total and permanent disability and student loan borrowers who experienced the borrower defense to repayment rule, based on fraudulent, misleading or illegal acts by schools. It’s important to know that these laws already existed and were not part of an implemented plan for across-the-board student loan reform.

If you’re worried about the debts you should pay off first or wondering about whether you should pay off your student loans or invest, there’s good news if you’re a borrower — you may not have to pay them off on your own at all, though that comes with some cautions and caveats.

We’ll go over the programs that can help you forgive student loans, how to apply for student loan forgiveness, the types of jobs that offer it and more.

What is Student Loan Forgiveness?

Student loan forgiveness refers to your ability to be set free from having to pay for all or part of federal student loan debt. Student loan forgiveness doesn’t apply to every student, nor does it apply to every loan.

The federal government will cancel all or part of an educational loan only under certain circumstances. Generally, you must check the boxes on the following:

  • Complete volunteer work
  • Serve in the military
  • Teach students in specific school districts
  • Practice medicine in certain types of communities

You may have heard the words “forgiveness,” “cancellation” and “discharge” and assume that they mean the same exact thing, but the terms all get applied differently.

  • Forgiveness or cancellation: If your job allows you to no longer have to make payments on your loans due to your job, this is called forgiveness or cancellation.
  • Discharge: Discharge means you’re no longer required to make payments on your loans due to other circumstances. For example, if your college or university shuts down, you can receive a discharge from your federal student loans.

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What Jobs Qualify for Student Loan Forgiveness?

We briefly listed several general job types that can qualify for student loan forgiveness, but let’s take a closer look at the types of specific jobs that you can hold that qualify for student loan forgiveness.

Federal Agency Employees

If a federal agency employee has had a hard time getting the right employees on board, the federal agency may offer student loan assistance. New employees must sign a contract with the agency to work with the agency for at least three years. Agencies may make payments to the loan holder of up to a maximum of $10,000 for an employee in a calendar year but must not total $60,000.

Employees in Public Service

Qualifying organizations may allow public service workers to qualify for loan forgiveness. Individuals can get full Perkins loan cancellation. The Public Service Loan Forgiveness (PSLF) program offers one of the best options for workers in government organizations, tax-exempt organizations or not-for-profit organizations with a qualifying service. (We’ll go over this program in more detail later in the article.) You will not have to pay taxes on your forgiven loans.

Volunteer Organization Workers

Organizations like the Peace Corps, AmeriCorps and Volunteers in Service to America (VISTA) offer student loan repayment options, which you can receive after you’ve finished your service to that particular organization. Check with each organization’s qualifications. For example, Peace Corps Volunteer service is considered qualifying employment for the PSLF Program.

Teachers

The Teacher Loan Forgiveness Program stipulates the requirements for teachers, which include teaching full-time for five complete academic years in a row in a low-income school or educational service agency. You must meet other qualifications for forgiveness of up to $17,500 on your Direct Subsidized and Unsubsidized Loans and your Subsidized and Unsubsidized Federal Stafford Loans.

Lawyers

The Department of Justice Attorney Student Loan Repayment Program (ASLRP) recruitment and retention incentive program chooses participants during an annual open season. Any Justice employee in a position can request consideration for the ASLRP. The Department selects new attorneys each year, subject to availability of funds. You can also tap into public service forgiveness options as a lawyer through the PSLF program.

Medical Specialties

Many medical specialties qualify for student loan assistance through military, state and national programs. Let’s take a look at the types of jobs that qualify for student loan assistance, including physicians, nurses, dentists, pharmacists and even veterinarians.

Medical professionals can look into state loan repayment programs (SLRPs) through the National Health Service Corps. Working in a health professional shortage area for at least two years can contribute to loan reimbursement. However, you may also choose to work in a designated area longer to receive a larger break in student loans. The amount paid out for your loans will vary, depending on the state in which you live.

Physicians

As a physician, you can check into your eligibility for student loan repayment assistance. The Association of American Medical Colleges offers a searchable database that contains detailed information about state and federal programs for medical and other health professionals.

Dentists

Dentists can tap into loan repayment assistance programs. Military programs and those at the state level offer many opportunities, which you can find on the American Dental Association website.

Pharmacists

Pharmacists, who take on a lot of debt to earn their degrees, just like dentists and physicians, can also look into state loan repayment programs (SLRPs) through the National Health Service Corps.

Nurses

Nurses can tap into assistance through the Nurse Corps Loan Repayment Program. The program pays up to 85% of unpaid nursing education debt for registered nurses (RNs), nurse practitioners (APRNs) and nurse faculty. You must work in a critical shortage facility or an eligible nursing school as a nurse faculty member.

Mental Health Workers

Mental health professionals, such as health service psychologists, licensed clinical
social workers, psychiatric nurse specialists, licensed professional counselors, marriage and family therapists and others can consider a state loan repayment program (SLRP) through the National Health Service Corps.

Veterinarians

The U.S. Department of Agriculture offers $25,000 per year for three years in student loan repayment assistance to veterinarians who work in underserved areas. State programs also help veterinarians who agree to work in shortage areas.

It’s important to know that most student loan forgiveness programs require you to fulfill very specific requirements and a minimum term to qualify. You also can’t rack up missed payments on your student loans. Make sure you do your due diligence before you choose a job-oriented route or try to base career decisions off of whether a particular profession offers loan forgiveness options.

How Student Loan Forgiveness Works

Curious about how you may qualify for loan forgiveness and how it works?

The most important component of figuring out how student loan forgiveness works involves doing your research so you know how each program operates. Each type of repayment plan follows different processes.

For example, the vast majority of programs don’t offer upfront student loan cancellation. It might even take you up to 25 years to become fully eligible for income-driven repayment plans.

Let’s go over the steps so you know how to qualify for loan forgiveness through federal student loan servicers. (Note that this process doesn’t apply to state-based or other organization-based loans, such as loan forgiveness for the Association of American Medical Colleges. You’ll follow this organization’s individual processes.)

Step 1: Contact your loan servicer. 

First, remember that federal student loans — not private student loans — qualify for these programs, though you might be able to change your loan payment options with a private loan.

Your loan servicer will help you understand which programs you can qualify for. Not sure which loan servicer handles your loans? Find out which organization services your loan.

If you have a Perkins Loan, you’ll want to contact the school that made the loan or your loan servicer.

Your loan servicer will give you an application to fill out to determine if you qualify for loan forgiveness.

Step 2: Continue to make your payments during the review period.

You may have to make payments while your application is under review, depending on the type of forgiveness, cancellation or discharge. Clarify with your loan servicer as to whether you’ll need to continue making payments during this time.

Step 3: Take action whether partially approved or denied.

If your application was approved and you qualify for forgiveness, cancellation or discharge, you do not need to make any more loan payments. However, you must pay the remaining balance if you qualify for forgiveness, cancellation or discharge of some of the loan.

On the other hand, you may not be eligible and therefore denied forgiveness, cancellation or discharge. You’ll need to repay your loan according to the details on your promissory note.

Learn more about repayment options if you feel that you need income-based repayment options.

Student Loan Forgiveness Programs

Let’s take a closer look at federal loan-specific student loan forgiveness programs. We’ll explain eligibility, how they work and a few details on

Public Service Loan Forgiveness

Public Service Loan Forgiveness (PSLF) refers to cancelling your remaining federal student loan debt after you make a specified number of monthly payments. You must satisfy all of the service requirements before you get your loans forgiven or cancelled. Note that the program only applies to federal direct student loans, such as the following:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Parent PLUS Loans
  • Graduate PLUS Loans
  • Direct Consolidation Loans

Eligibility

You must work full-time at a public service job.

How it Works

After you make payments for 10 years or 120 payments (you do not have to make them consecutively), your loans can be forgiven.

Keep in mind that you would have had to switch to an income-driven repayment plan because the standard repayment term for federal student loans goes up to 10 years.

Income-Driven Repayment

Income-driven repayment plans allow you to get your student loan payments adjusted based on your income. The program forgives any outstanding student loan balance after you’ve made payments for a specific time. The Department of Education offers the following repayment plan options:

  • Revised pay-as-you-earn (REPAYE) repayment plan: Loan remainder forgiven after 20 years (undergraduate loans) and 25 years (graduate loans)
  • Pay-as-you-earn repayment (PAYE) repayment plan: Loan remainder forgiven after 20 years
  • Income-based repayment (IBR) plan: Loan remainder forgiven after 25 years
  • Income-contingent repayment (ICR) plan: Loan remainder forgiven after 25 years

Eligibility

According to the federal student aid website, the following types of loans are eligible for each program:

  • REPAYE and PAYE: Direct Subsidized and Unsubsidized Loans, Direct PLUS Loans for students and Direct Consolidation Loans (check on the details with your loan servicer).
  • IBR: Direct Subsidized and Unsubsidized Loans, Subsidized and Unsubsidized Federal Stafford Loans Loans, Direct or FFEL PLUS Loans for students, Direct or FFEL Consolidation Loans check on the details with your loan servicer).
  • ICR: Direct Subsidized and Unsubsidized Loans, Direct PLUS Loans for students and Direct Consolidation Loans.

How it Works

Put simply, you reduce your monthly student loan payment based on your income and the size of your family. Each plan calculates the payment amount differently, so check with your loan servicer on the details of each plan. You can apply for an income-driven repayment plan at studentaid.gov. You should contact your loan servicer first.

Teacher Loan Forgiveness

Qualifying teachers can get a portion of student loan debt forgiven through the Teacher Loan Forgiveness Program, as illustrated earlier in the article.

Eligibility

Qualified full-time teachers employed at a school that serves low-income students can become eligible for partial forgiveness as long as they teach for five consecutive years, have Direct Subsidized, Direct Unsubsidized Loans, Direct Subsidized or Direct Unsubsidized Federal Loans.

How it Works

First, fill out the application. The amount forgiven depends on the subject you choose to teach.

Closed School Discharge

Has your college or university closed or did it close while you were enrolled at the institution? You may be eligible for a closed school discharge.

Eligibility

You must have Direct Loans, FFEL Program loans or Perkins Loans to qualify. In addition, you must:

  • Have been enrolled when your school closed,
  • on an approved leave of absence when your school closed or
  • be 120 days or 180 days removed from your school closure, depending on when your loans were disbursed.

How it Works

You’ll automatically get an application in the mail, which you can submit to your loan servicer. You can contact your loan servicer directly about the application process.

Perkins Loan Cancellation and Discharge

Your Perkins Loan may become canceled based on your employment or volunteer service or discharged under certain conditions.

Eligibility

You can only tap into Perkins Loan Cancellation and Discharge if you have Federal Perkins Loans.

How it Works

You must meet the conditions for cancellation and discharge and submit an application. The school that made the loan or the school’s Perkins Loan servicer can give you forms and instructions for your type of cancellation or discharge.

Total and Permanent Disability Discharge

If you become permanently and completely disabled, you may qualify for a federal loan discharge or Teacher Education Assistance for College and Higher Education (TEACH) Grant.

Eligibility

You must have Direct Loans, FFEL Program loans and/or Perkins Loans.

How it Works

Total and Permanent Disability Discharge requires that you complete and submit a discharge application and documentation showing that you meet the requirements. You must submit them to Nelnet, the servicer that assists ED with the TPD discharge process.

Discharge Due to Death

As long as your loved ones submit the required proof of death, your loved ones can get your federal loans discharged when you die.

Eligibility

Available if you had Direct Loans, FFEL Program loans and Perkins Loans. In addition, if someone took out a PLUS Loan on your behalf, that can also become discharged.

How it Works

Your family or other representative must submit documentation of your death through an original death certificate, a certified copy of the death certificate or an accurate and complete photocopy to your loan servicer.

Discharge in Bankruptcy 

Very rarely, the Department of Education grants discharges due to bankruptcy.

Eligibility

You must have Direct Loans, FFEL Program loans and/or Perkins Loans.

How it Works

You may have your federal student loan discharged in bankruptcy only if you file an adversary proceeding and show proof that paying back your student loans would put undue hardship on you and your family.

You must declare Chapter 7 or Chapter 13 bankruptcy. Note that your creditors may be present to challenge the request in court.

Borrower Defense to Repayment

If a school failed to do something related to your loan or failed in the educational services that the loan was intended to pay for, you may qualify for a borrower defense to repayment discharge.

Eligibility

If you can demonstrate that a school misled you or engaged in misconduct or violated state law related to your loan or your educational services provided, you may receive this discharge.

How it Works

You must apply for borrower defense to repayment in the application portal on studentaid.gov.

False Certification Discharge

If your school falsely certified your eligibility to receive a loan, you could qualify for a false certification discharge.

Eligibility

You may qualify for this if you have a Direct Loan and/or FFEL Program loans.

How it Works

If your school falsely certified your eligibility to receive a loan, if you had a status that disqualified you from meeting the legal requirements for employment or the school signed your name on the application or promissory note without your authorization, you may apply under any one of these through the False Certification Discharge application.

Unpaid Refund Discharge

Did you withdraw from a college or university and the school didn’t make a required return of loan funds to your loan servicer? You might get a discharge for the portion of your federal student loan(s) that the school didn’t return.

Eligibility

You may get this discharge if you have Direct Loans and FFEL Program loans.

How it Works

You must fill out the application and only get the portion of your loan that your school should have returned.

Downsides of Student Loan Forgiveness Programs

Naturally, the upside to student loan forgiveness is that you get your federal student loans partially or completely forgiven. However, you do have to consider a few “warnings” when you attempt to apply for student loan forgiveness. Let’s go over the details.

Downside 1: You don’t qualify right away. 

You often have to complete years of service before your debt melts away. For example, the Teacher Loan Forgiveness requires you to work in a low-income school district or shortage area for five years. On the other hand, you have to work for 10 years at a specific public service location or other qualifying job to qualify for PSLF.

Income-driven repayment plans don’t happen instantaneously, either. You’ll have to pay on your loans for 20 or more years — it’s a long time to wait to have student loans vanish. You might just save yourself a lot in interest by paying them off altogether rather than holding out for the government to dissolve them. This way, you can work on your other financial goals and obligations instead of keeping student loans in your life for that long.

Whatever you do, remember that loan forgiveness might not fix your entire student loan debt situation. In addition, since it won’t happen automatically, you may need to arm yourself with the mentality that you need to put some time and figure out how to eradicate your debt on your own.

Downside 2: The jobs that fit forgiveness qualifications might not align with your career goals.

Let’s say you chose a job based on the fact that you knew you’d get your student loans forgiven after a certain amount of time. For example, maybe you majored in English because you’d always wanted to be a writer, then added an education major to your English degree as you began to take on more student loan debt. You reasoned that you’d teach for five years in a low-income school district in order to get your loans partially forgiven.

However, the job wasn’t a good fit and you can’t fulfill the five years required. You end up with a job that you didn’t want in the first place and still have student loans to show for it.

Is this an extreme example? These kinds of things do happen, so remember that it’s more important to make sure your career goals align with the forgiveness opportunities.

Downside 3: You might have to pay taxes.

Your forgiven amount may be treated as taxable income. Normally, those taxes will be due the year your debt is forgiven. However, forgiveness you receive between now and 2025 will be tax-free through the American Rescue Plan. Remember that after 2025, nothing is set in stone.

Downside 4: Private loans offer much more limited options.

You can’t “take care of” private student loans through the Department of Education. Only federal student loans fall under this umbrella.

Even so, some student loan repayment assistance programs can help you with private loans through a few years of service through certain occupations.

You might also be able to look into certain repayment options. Talk to your private student loan provider for more information.

Downside 5: Not everyone qualifies.

Those who have private loans or don’t fit into the qualifications for federal student loan forgiveness, cancellation and discharge, can’t take advantage of these programs. They’d rely on new federal mandates to pass in the future regarding student loan forgiveness or tap into a change in their monthly payment plans.

How Likely is Student Loan Forgiveness?

Not everyone can tap into student loan forgiveness programs. Furthermore, despite rumors regarding federal student loan forgiveness on a broad, sweeping scale — it’s still up in the air. The Biden administration has asked the Department of Education to look into the legalities of offering more student loan reform.

However, fierce political arguments rage over programs such as PSLF and borrower defense to discharge.

Furthermore, not many individuals can even say they’ve obtained income-driven repayment benefits because they are so new.

It is likely that Biden will continue to cancel more student loan debt, but that doesn’t mean the administration will cancel everyone’s student loans. Biden also doesn’t support cancellation of all student loans — he publicly supports $10,000 of cancellation but also wants Capitol Hill to explore more options open to them. As of now, he’ll likely continue to operate under already-existing measures, such as the borrower defense to repayment rule.

However, it’s also important to note that student loans don’t just “get cancelled” — federal taxpayers will still have to pay to cancel student loans.

Ultimately, whether student loan experts believe that student loan reform will pass over the national stage, they tend to agree on one thing: You shouldn’t set your repayment strategy solely based around whether you believe that student loan forgiveness is coming soon. It’ll take a long time to arrive if it does — and that’s a big “if.”

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Personal Capital compensates Melissa Brock (“Author”) for providing the content contained in this blog post. Compensation not to exceed $500. Author is not a client of Personal Capital Advisors Corporation. The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Melissa Brock spent 12 years in college admission and is the founder of College Money Tips. She also writes financial content and loves helping families navigate the college search process.
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