Is student loan forgiveness right for you?
If you’re a teacher, a nurse or other public servant who works in an area with high need—and if you’ve made at least 120 payments on your federal student loans and have remained up-to-date on them—you could qualify for forgiveness under the Public Service Loan Forgiveness (PSLF) program, which erases the remaining balance on any Direct Loans after 10 years of qualifying repayments.
Even if you don’t work in an eligible field, there’s still hope.
Income-driven repayment (IDR) plans can also help ensure affordable payments and loan forgiveness after 20 or 25 years of payments, depending on the plan. Any outstanding balance will be forgiven when these plans come to term.
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Find out if you meet the requirements for student loan forgiveness.
You may be eligible for student loan forgiveness if you meet the Department of Education’s (DOE) requirements. Your eligibility depends on factors like your income, the type of work you’re doing, and how much time you’ve spent making payments.
To find out if you qualify, check out the DOE’s interactive tool that helps borrowers determine their eligibility for Public Service Loan Forgiveness (PSLF). You can also read through the DOE’s requirements or have a look at my guide to help walk you through them. They include:
- Making 120 qualifying payments while working full-time at an eligible employer
- Having one or more Direct Loans made under the William D. Ford Federal Direct Loan Program
- Being employed by a government organization at any level (federal, state, local, or tribal), a 501(c)(3) nonprofit organization, or some other types of not-for-profit organizations
- Having loans made under other federal student loan programs that were consolidated into a Direct Consolidation Loan
Find out if your loan is eligible for student loan forgiveness.
First things first: what type of loan do you have?
If you have a federal loan, this next part is important: the only loans eligible for forgiveness are direct loans. Direct Loans are those issued directly by the federal government and include Stafford, Grad PLUS, and Parent PLUS loans. If your loan was issued through a bank or other intermediary organization like Sallie Mae, it is not eligible for forgiveness.
To check whether you have a Direct Loan, visit www.nslds.ed.gov/npas/index.htm to view your National Student Loan Data System (NSLDS) account (you’ll need your FAFSA PIN to access the site). All of your student loans will be listed here on this site along with information about their status and type of loan that they are.
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File any missing tax returns and submit them with your application.
If you’re not sure whether you need to file a tax return, or if you want to check the status of your past tax filings, call the IRS at (800) 829-1040. You can also use their online tool, Transcript Delivery System. The IRS typically begins accepting requests in mid-January and will fulfill them within 5-10 business days.
If you have missing returns from recent years, you’ll generally have time to get them filed before applying for PSLF since it can take up to six months for the Department of Education to process an application.
However, if your application is reviewed by FedLoan Servicing and they determine that your state income taxes were not paid either in full or through a payment plan, they will send you a letter asking for proof that those taxes are being paid off over time.
The letter will request proof of three consecutive months of payments, which could be difficult if those payments haven’t yet been made. So it’s best not to delay filing your tax returns even though it may be tempting because forgiveness is still such a long way away!
To submit these documents with your PSLF application packet:
- Certified copies of all federal and state tax returns filed while in an eligible repayment program
- State withholding information (if applicable)
Prove you’re doing the right kind of work for student loan forgiveness.
To qualify for PSLF, you must be employed full-time in public service. This means that you work at least 30 hours per week in a position that: is with a federal, state, local or tribal government organization; is with a tax-exempt 501(c)(3) non-profit organization; is with other types of not-for-profit organizations that provide certain types of qualifying public services.
Qualifying organizations include any level of government including: Federal, State, Local and Tribal Organizations The military Nonprofits that are tax exempt under Section 501(c)(3) of the Internal Revenue Code Nonprofits that are not tax exempt under Section 501(c)(3), but provide specific qualifying services to the public American Bar Association accredited law school clinical programs
Public Service Organizations (PSOs): AmeriCorps VISTA Peace Corps In addition to employment by these types of organizations, your job must also meet one or more of the following criteria: Law enforcement Emergency management Military service Public interest law services Early childhood education Public service for individuals with disabilities Public education Work for a tribe or tribally designated housing entity Other school-based services
Make sure you’ve been repaying your loans the right way.
There are several different student loan repayment plans available. While it’s usually not a good idea to default on your debt, you need to make sure that the payment plan you choose is right for you.
If, for instance, you choose a plan that requires $700 in monthly payments and your total income is only $1,200 per month, then this is clearly going to cause serious financial stress and might end up causing you to default anyway.
On the flip side, if your income is sufficiently high enough (say $1,500 or more), then it’s actually better to avoid graduated repayment plans or income-driven plans because they will cost significantly more in interest over their lifetime than other plans which have a fixed monthly payment amount (like Standard Repayment).
Start making payments on the income-driven repayment plan that’s best for you.
When you get a student loan, it’s usually part of your first job. But even if you’re working for some of the most financially stable companies in the world, taking out a loan to pay for school doesn’t make any sense.
You’ll want to consider an income-driven repayment plan. It’s likely that the average balance on a federal student loan is around $25,000 and this number is only going up. If you can afford to pay it off quickly, then paying just 10% or 15% of your income each month will come as easily as turning on a light switch.
If you’re already struggling, then don’t sign up for an income-driven repayment plan—you’ll be better off with one that offers forgiveness after 20 or 25 years of payments.
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Student loan forgiveness is a complicated process but it can be done
Just because you meet some of the qualifications for loan forgiveness doesn’t mean you necessarily qualify. It’s important that you understand the rules and whether or not they apply to your situation.
For example, the PAYE and REPAYE plans are only available for federal direct loans; if you have other types of loans, such as Federal Family Education Loans (FFELs) or Perkins Loans, those programs won’t apply to you. If you don’t know what type of loans you have, ask your lender or loan servicer.
Additionally, many student loan forgiveness programs are tied to specific eligibility requirements—for example, a certain public service job or a particular income threshold—so it’s crucial that you ensure that your situation meets those requirements before enrolling in a program.
