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Student Loan Debt Forgiveness

More than 44 million Americans owe a combined $1.5 trillion in student loan debt. As a result, it’s currently the second-highest consumer debt category, behind only mortgages. The good news? There are a variety of government programs offering relief for people with student loan debt, ranging from income-based repayment plans to debt forgiveness programs. And more help may be on the way: Democratic presidential candidates including Elizabeth Warren and Bernie Sanders have proposed programs that would do away with the country’s mountain of student loan debt.

Here’s what you should know about the debt relief programs currently available to student loan debt holders… and what might be around the corner.

Current Student Loan Debt Forgiveness Options

As of this writing, only federal loans are eligible for debt forgiveness. That leaves non-federal loans – meaning those that are handled by private lenders – ineligible for these programs. If you hold a private student loan, you’ll need to look into student loan refinancing in the hopes of obtaining a lower interest rate. You might also consider working with a financial advisor to figure out your best options for navigating this debt.

If you have federal loans, it might be worth consolidating them through the U.S. Department of Education prior to applying for debt forgiveness programs. You should also be aware that there can be a tax obligation tied to loan forgiveness. For example, debt wiped out through some plans is taxed as income, so you might end up with an unexpectedly high tax bill.

Some of your debt forgiveness options include:

  • Public Service Forgiveness Plan
  • Income-Driven Repayment Plans
  • Military Forgiveness Programs
  • Perkins Loan Cancellation Options
  • Student Loan Discharge Options
  • Volunteering-Based Student Loan Forgiveness Options
    • AmeriCorps
    • Sponsor Change
  • Employer-Based Student Loan Assistance
  • State-based Student Loan Forgiveness Program

We’ll discuss the details of each program.

Public Service Loan Forgiveness Program

Public service loan forgiveness

The Public Service Loan Forgiveness Program is a tax-free initiative that began in Oct. 2007. You are eligible if you meet the following requirements:

  • You are an employee at a federal, state, local or tribal government entity or 501(c)(3) not-for-profit organization
  • You work at least 30 hours a week (or meet your job’s full-time requirements, if different)
  • You have non-defaulted Direct Loans that you repay on an income-driven repayment plan
  • You have made 120 qualifying monthly payments, which are any payments you make:
    • after Oct. 1, 2007
    • in the total amount indicated on your bill
    • no more than 15 days after your due date
    • while a full-time employee at a qualifying employer
    • under a qualifying repayment plan

If you’re eligible for this program, be sure to fill out your application properly. Many applications have been rejected due to missing or incomplete information, or because they did not meet the program requirements. In fact, more than 73% of applications have been denied because the applicants did not meet the program requirements. In many cases, borrowers had ineligible student loans, did not make 120 qualifying payments yet or did not work for a qualifying employer.

Debt Forgiveness Through Income-Driven Repayment Plans

The federal government offers four different income-driven repayment plans. Through these you’ll receive access to affordable payments that are based on your level of discretionary income, among other factors. For these plans, the definition of discretionary income is the difference between the federal poverty guideline for your family size/state and your annual income. Depending on which plan you choose, once you’ve made payments for either 20 or 25 years, the rest of your student debt will be forgiven.

Here’s a breakdown of each option:

Income-Based Repayment Plan (IBR Plan)

  • Borrowers who were issued their first loans on or after July 1, 2014 pay up to 10% of their discretionary income and receive forgiveness after 20 years of repayment.
  • Conversely, borrowers who were issued their first loans before July 1, 2014 pay up to 15% of their discretionary income and receive forgiveness after 25 years of repayment.
  • In both cases, payments are capped at the 10-year Standard Repayment Plan amount.

Pay As You Earn Repayment Plan (PAYE Plan)

  • All eligible borrowers pay up to 10% of their discretionary income, though this amount shall never surpass the 10-year Standard Repayment Plan amount.
  • PAYE offers student loan forgiveness after 20 years of repayment for all participants.

Revised Pay As You Earn Repayment Plan (REPAYE Plan)

  • Borrowers pay up to 10% of their discretionary income, though there is no Standard Repayment Plan cap.
  • If borrowers’ loans were for undergraduate studies, then student loan forgiveness comes after 20 years of repayment.
  • Borrowers who took out loans for graduate studies will reach student loan forgiveness after 25 years of repayment.

Income-Contingent Repayment Plan (ICR Plan)

  • Borrowers pay the lesser of:
    • 20% of their discretionary income
    • what they would pay in income-adjusted fixed payments over the course of a 12-year repayment plan
  • ICR Plan borrowers achieve student loan forgiveness after 25 years of repayment.

Neither the REPAYE nor the ICR plans have an income eligibility requirement. To qualify for either the PAYE plan or the IBR plan, however, your monthly student loan payments must be less than what your payments would be under the 10-year Standard Repayment Plan.

Beyond this, prospective PAYE plan participants “must have had no outstanding balance on a Direct Loan or a Federal Family Education Loan (FFEL) Program loan when (they) received a Direct Loan or FFEL Program loan on or after Oct. 1, 2007, and (they) must have received a disbursement of a Direct Loan on or after Oct. 1, 2011,” according to the U.S. Department of Education’s website.

Military Forgiveness Programs

Student Loan Debt Forgiveness

Army Loan Repayment Program (LRP) for Active Duty Soldiers

If you wish to utilize the Army LRP, you must be an active duty soldier and enlist for at least three years. Other requirements include having a high school diploma, scoring at least 50 on the Armed Services Vocational Aptitude Battery (ASVAB) and more. Through the LRP, the Army will pay up to one-third of your principal balance each year for as many as three years, with a total cap of $65,000, minus taxes.

Army LRP for Active Duty Army Reserve Soldiers

The same program applies for active duty Army Reserve Soldiers, only with slightly altered stipulations. More specifically, the LRP is available to anyone in the Army Reserve that enlists for at least six years, has a high school diploma, scores no less than a 50 on the ASVAB and has loans that were made, insured or guaranteed before they went on active duty.

As far as payments go, the Army will pay for 15% of your outstanding principal balance. This is limited to a total payment of $20,000.

Army LRP for Health Professionals

Doctors, dentists, nurses, healthcare professionals and veterinarians on active duty in the Army qualify for the LRP. You will receive up to $40,000 a year for loan repayment for three years. These benefits are capped at $120,000.

Army National Guard Student Loan Repayment Program (SLRP)

To qualify for the SLRP as a non-prior service soldier, you must enlist for at least a six-year term of service and score at least a 50 on the Armed Forces Qualifying Test (AFQT). If you are a prior service soldier, you still need to sign up for six years of service, but the minimum AFQT score is just 31.

The maximum benefit for the Army National Guard SLRP is $50,000.

Navy Student Loan Repayment Program (LRP)

The Navy has its own LRP as well. Similar to the Army’s version for active duty soldiers, active duty sailors must sign up for at least a three-year term of service to gain eligibility. Again, this program offers repayment assistance for up to three years with a cumulative cap of $65,000. This amount is minus any federal and state taxes that may apply.

Air Force Judge Advocate General’s (JAG) Corps Loan Repayment Program (LRP)

Like its military counterparts, the Air Force offers up to $65,000 in student loan repayments benefits over a three-year period. This becomes available after the JAG officer completes their first year of service. This money can be used to pay back loans for law school, graduate and undergraduate programs.

Perkins Loan Cancellation Options

If you took out a Perkins Loan before the program expired on Sept. 30, 2017, you may be able to have up to 100% of your loan cancelled. Perkins Loan cancellation is applied for annually and awarded in increments over four or five years. Each year you qualify for forgiveness, any interest you accrued that year will also be forgiven.

You can get up to 100% of your loans cancelled if you hold one of the following positions:

  • Teacher serving low-income families
  • Special education teacher working with infants, toddlers, children and youth with disabilities
  • Mathematics, science, foreign languages and bilingual education teachers
    • Also applies to teachers in any other field of expertise that’s determined by a state education agency to have a shortage of qualified teachers in that state
  • Law enforcement or corrections officer
  • Nurse or medical technician
  • Librarian with a master’s degree in a Title I school or public library serving Title I schools
  • Attorney in a federal public or community defender organization
  • Employee of a nonprofit child or family services agency
  • Employee of a Head Start educational program
  • Staff member for a state-regulated child care program
  • Early intervention services for people with disabilities provider
  • Faculty member at a tribal university or college
  • Full-time speech pathologist with a master’s degree working in a Title I-eligible elementary or secondary school

If you are an AmeriCorps VISTA or Peace Corps volunteer, you can get up to 70% of your student loans forgiven.

So long as you can provide supporting documentation to prove them, you might be eligible for full or partial Perkins Loan cancellation if any of these scenarios apply:

  • The borrower dies or has a permanent disability
  • Bankruptcy, if you are able to prove undue hardship
  • Your school closed before you completed your program
  • You served in the armed forces in a hostile fire or imminent danger area

You must apply for your Perkins Loan cancellation through your school or your school’s loan servicer. If you don’t know where to go to apply, check with your school’s financial aid office.

Student Loan Discharge Options

Student Loan Debt Forgiveness

Closed School Discharge

To be eligible for a closed school discharge, the loans must have been made on or after January 1, 1986. The student must have been unable to complete their education because the school where they were enrolled closed, or the student withdrew from the school less than 120 days before the school closed. Borrowers who receive this discharge are eligible for reimbursement of any money they spent on the discharged loans.

You can apply for a closed school discharge by filing the Loan Discharge Application: School Closure form. A list of closed schools is available in the Closed School Search File on the U.S. Department of Education website. However, if the student is completing a similar program at another school, for example, through transferred credits, the student is not eligible for a closed school discharge.

Death Discharge

Federal student loans are eligible for discharge if the borrower has passed away. When federal student debt is discharged, it means the balance is brought to zero and no further payments are needed.

To obtain a death discharge, your family will need to provide an original or certified copy of the . A complete and accurate copy of an original or certified copy of the death certificate is acceptable as well.

Some private student lenders offer a death discharge if the borrower dies. Financial institutions that do this include Sallie Mae, Wells Fargo, Discover and the New York State Higher Education Services Corporation.

Total and Permanent Disability Discharge

If a borrower becomes totally and permanently disabled, federal student loans and TEACH Grant service obligations can be discharged. According to DisabilityDischarge.com, total and permanent disability is defined as being “unable to engage in substantial gainful activity by reason of a medically determinable physical or mental impairment that can be expected to result in death, has lasted for a continuous period of not less than 60 months or can be expected to last for a continuous period of not less than 60 months.

To apply for this discharge, reach out to the U.S. Department of Education over the phone or by email. You can also start the application process online.

Bankruptcy Discharge

Very few people are successfully able to discharge their student loans in bankruptcy. However, if you are able to prove that the loans cause “undue hardship” on the borrower or the borrower’s dependents, it is possible to get them discharged. Bankruptcy law is not clear on the definition of “undue hardship,” but the most common test is known as the “Brunner test.”

The three factors a court will look at under the Brunner test are:

  • If you are required to pay off your loans, is maintaining a minimal standard of living for both you and your dependents a possibility at your current level of income and expenses?
  • Will your current financial situation carry on for a major portion of your repayment period?
  • Have you made a good faith effort to pay back your loans?

False Certification Discharges

Disqualifying Status

The school must have certified the eligibility of a student who would not be able to meet employment requirements in the occupation they were being trained for. Reasons for this lack of eligibility could be related to the student’s physical or mental condition, age or criminal record.

Forgery

If the school forged your name and signature on loan paperwork or other financial documents, you can qualify for a forgery discharge. Also, students cannot have benefited from the proceeds of the loan to retain this eligibility. You may hear this status referred to as an unauthorized signature discharge.

Identity Theft

Individuals who have their identity stolen and a loan taken out in their name can receive a discharge. The following trio of requirements must be met to attain this status:

  • The student must not have received or benefited from the federal student loan.
  • The student must provide evidence that they were the victim of identity theft, such as a court judgment that conclusively illustrates that the student is a victim of identity theft. The judgment must include the name(s) of the individuals who committed the crime.
  • The student must show one of the following:
    • That they did not sign the promissory note
    • That their identification was used to get the loan without their authorization

Unpaid Refund Discharge

To get this discharge, you must have been entitled to a refund of a federal student loan. In other words, you either withdrew from the school, did not attend the school or were terminated by the school, and the school did not return loan funds.

You can apply for an unpaid refund discharge by filing a Loan Discharge Application: Unpaid Refund form. If you get the discharge, it will include the amount of the refund that should have been paid by the school, as well as any charges associated with the unpaid refund.

Discharge for Spouses and Parents of 9/11 Victims and Public Servants

If you are a spouse or parent of someone who died or became totally and permanently disabled due to injuries suffered in the Sept. 11, 2001 terrorist attacks, you may be eligible for a discharge. This applies to 100% of all federal student loans borrowed or endorsed on behalf of the victim of the attacks. Unfortunately, any amount previously paid is not eligible for a refund.

The list of affected individuals includes:

  • Civilian victims
  • Firefighters
  • Police officers
  • Emergency medical personnel
  • Rescue personnel
  • Members of the U.S. Armed Forces

These individuals must have been affected at one of the following attacks on Sept. 11, 2001:

  • World Trade Center in New York City
  • Pentagon in Virginia
  • Shanksville, Pennsylvania aircraft crash sites

Forgiveness Options Available Through Charitable Organizations, State Governments and Employers

Some charitable organizations will help you pay off your student loans, including SponsorChange, AmeriCorps, AmeriCorps VISTA, Teach for America, the Peace Corps and the National Health Service Corps. Check out your eligibility and see if volunteering or working for one of these organizations can help you.

On occasion, employers offer assistance with your student loans. Check with your employer or HR department to see if they have a forgiveness or student loan repayment program that you’re eligible for.

Outside of Alabama, Connecticut, Tennessee, Utah and West Virginia, every state in the U.S. has at least one student loan forgiveness or repayment program. Check your state government’s website to find more information on the availability of these plans.

Democratic Candidates’ Plans for Student Loan Debt Forgiveness

Student Loan Debt Forgiveness

Democratic U.S. Senator Elizabeth Warren from Massachusetts, a possible presidential candidate for the 2020 election, has proposed a student loan debt forgiveness plan that would cancel student loan debt for tens of millions of Americans. Warren wants to cancel up to $50,000 in student loan debt for around 42 million Americans. That would wipe out student loan debt entirely for more than 75% of the Americans with that debt.

A Universal Free College program was also rolled out by Warren to go along with her student debt relief proposal. This program would eliminate tuition and fees at all two- and four-year public colleges across the U.S.

Warren plans on paying for her student loan forgiveness and universal free college plans with an Ultra-Millionaire Tax. This proposed tax law would require households with a net worth of at least $50 million to pay a 2% annual tax. Another 1% would be tacked on to the tax for families with a net worth over $1 billion.

Here is a more detailed overview of Warren’s plan for student loan debt forgiveness:

  • $50,000 in student loan debt is cancelled for every person with a household income under $100,000.
  • Warren has a specific debt cancellation plan for anyone with a household income between $100,000 and $250,000:
    • The aforementioned $50,000 cancellation amount phases out by $1 for every $3 in income above $100,000. For example, Warren’s proposal states that “a person with household income of $130,000 gets $40,000 in cancellation, while a person with household income of $160,000 gets $30,000 in cancellation.”
  • Those with a household income above $250,000 would not be eligible for cancellation.
  • Private student loan debt would be eligible for cancellation.
  • Any student loan debt that’s cancelled would not be taxed as income.

Note that other candidates have plans for student loan debt too. Bernie Sanders, the junior Senator from Vermont, has likewise proposed cancelling student loan debt. His plan goes further than Warren’s in one key respect: He would make debt forgiveness available to all borrowers, regardless of their income. That means that even borrowers making more than $250,000 a year would be eligible.

Julian Castro, the former mayor of San Antonio and former secretary of Housing and Urban Development (HUD) under President Obama released a pre-K through college education plan that would include student loan forgiveness, as well as discharging student loans through bankruptcy.

Andrew Yang, most recently the founder of Venture for America, has said that he would look into a partial reduction in student loan principal for recent graduates. Yang is also considering a plan where the federal government would buy up all outstanding student debt and allow borrowers to repay their loans by putting 10% of their income towards them for a decade.

Bottom Line

Paying off your loans and figuring out all of your options to reduce your debt can be overwhelming. There are a variety of programs that provide relief from your student loan debt, ranging from sustainable payment plans to outright forgiveness. And the Democratic candidates for president – most notably, Elizabeth Warren and Bernie Sanders – have proposed sweeping plans for forgiving student loan debt.

While Americans with private loans are largely ineligible for the programs currently available, student loan refinancing is a viable option. If you qualify, you can get a lower interest rate and save money. Just remember that if you have a federal student loan, refinancing to a private student loan with a lower rate would make you ineligible for any current or future debt relief programs from the government.

Tips for Your Financial Plans

  • The sooner you can deal with your student loan debt, the sooner you can start saving for retirement and investing your assets. A financial advisor can help you navigate your debt and get on track with saving and investing. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
  • Regardless of whether you’re paying off student debt, a mortgage or a credit card, a well-constructed budget can help you keep your finances in order. If you don’t know where to start, try using SmartAsset’s budget calculator.

Photo credit: ©iStock.com/William_Potter, ©iStock.com/laflor, ©iStock.com/Bumblee_Dee, ©iStock.com/beer5020, ©iStock.com/designer491

Sarah Fisher Sarah Fisher has been researching and writing about business and finance for years. She has worked for the Consumer Financial Protection Bureau and her work has appeared on Business Insider and Yahoo Finance. Sarah has a bachelor's degree from Georgetown University and is from New York City. When she isn't writing finance articles, she dabbles in animation and graphic design.
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