Everything You Need to Know About the Student Loan Forgiveness Program

In simple terms, student loan forgiveness is when an individual avails the loan assistance program that cancels out the remaining balance of the student loan amount due, after a period of time.

If you are approved for the student loan forgiveness program, you will no longer be liable for any loan payments. However, there are certain terms that may seem similar and are loosely thrown around but are very different in meaning. 

• Loan Forgiveness or Cancellation

This is when the loan defaulter is not required to make any more loan payments, usually referred to as forgiveness or cancellation.

• Loan Discharge 

This is when the defaulter is no longer required to complete their monthly loan payments due to some unforeseen circumstances such as the closure of the educational institution or in the case of permanent disability. When this occurs, it is referred to as a loan discharge.

What are Some of the Student Loan Forgiveness Programs?

The student loan forgiveness directory has a list of all the forgiveness programs available in the United States and can be selected according to your state, as each one has their own list and procedures on loan forgiveness.

Public Service Loan Forgiveness 

The Public Service Loan Forgiveness (PSLF) program is specifically tailored for the people who work in public service. Usually when it comes to PSLF, it is less about your job designation and more about the reputation of the company who provided the employment. You are allowed to apply for this loan forgiveness program after making 120 payments towards the existing loan. Remember, that these 120 payments need not be made consecutively.

In order to qualify, the individual must be a full time employee in a state, local or federal agency, this includes most government agencies and any other companies that qualify under the 501(c)(3) designated organization. Not all loans can be forgiven under this program, it is mostly direct loans which also include direct PLUS loans, direct consolidation loans, direct subsidized and unsubsidized loans. If you work for any religious-based nonprofit organization, you will not be eligible to avail the Public Service Loan Forgiveness program.

Income-Based Repayment Forgiveness

The Forgiveness by Income-Based Repayment (IBR) is not is not a traditional loan forgiveness program. Though IBR, the student loan repayments will be capped between 10% to 15% of the defaulter’s income.

Now, depending on the loan term you have availed, let’s say 20 to 25 years. You will be required to make payments consistently. After more than half of the loan term is completed, you can apply for the IBR program, once you qualify, the remaining loan amount will be forgiven.

However, under the existing tax reforms, the forgiven loan will be taxed as income when you avail the IBR program. These IBR loan repayments should be much less than what the initial repayment amount would be under the standard repayment cycle. Not all loans can avail this IBR loan forgiveness program, the ones that can are listed below.

• Direct grad PLUS loans.
• Federal Perkins loans.
• Direct consolidation loans.
• Direct subsidized and unsubsidized loans.
• Subsidized and unsubsidized Federal Family Education Loans (FFEL).

Pay As You Earn Forgiveness

The Pay As You Earn (PAYE) forgiveness program is similar to IBR as it also has a monthly payment cap of 10% of the individual’s income. The defaulter will have to make loan payment for a period of 20 year or more to avail this program. After which, any of the remaining loan amount due will be forgiven but the forgiven amount will be considered as taxable income.

To be eligible for the PAYE forgiveness program, the individual’s PAYE loan payments should be significantly less than what would be paid under the standard repayment plan of 10 years. The loans that qualify for PAYE are listed as follows.

• Federal Family Education Loans for grad students.
• Subsidized and unsubsidized Federal Family Education Loans (FFEL).
• Direct consolidation loans, unless they are repaid using the parent PLUS loans.
• Direct grad PLUS loans.
• Federal Perkins loans.
• Direct subsidized and unsubsidized loans.

What are the Circumstances for a Student Loan Discharge?

As explained earlier, the student loan discharge program is not the same as a student loan forgiveness program. There are around 8 circumstances where an individual can discharge a loan, these are as listed below. 

• Loan discharge when unauthorized payment is made.
• Loan discharge in the case of false certification.
• Loan discharge when the individual files for bankruptcy.
• Loan discharge in the case of permanent disability.
• Loan discharge in the case of student death. 
• Loan discharge in the case borrower defense.
• Loan discharge in the case of total and unpaid refunds.
• Loan discharge when the educational institution shuts down.

Remember that not everyone can qualify for the student loan forgiveness program. If you do not make the cut and are struggling with loan repayments, it may be best to consider refinancing your student loan. This can allow you to adjust your monthly loan amount according to your current financial situation and to choose a new loan duration (anywhere between 5 to 20 years).

However, if you refinance an existing federal loan, it will be converted to a private loan. When this happens, any benefits from the federal forgiveness programs cannot be availed.

Check online and compare the best student loan lenders, the rate they offer and the loan term. Try to refinance your loan for a low interest rate than what you availed it for. By doing so, you will be able to increase your amount of dispos