Let’s face it, there’s just not a lot of good news these days about student loans. This year’s graduating classis the most indebted class in history. The U.S. Dept. of Education is transferring people to new loan servicers again, causing some serious headaches for borrowers. Congress and the President can’t agree on anything, but they managed to get together in a rare, bipartisan agreement last month to pass a terrible student loan interest rate bill.
But it’s not all bad. No, seriously, there’s some good stuff out there, and I try to let you all know about it when I can.
Today’s post is about loan forgiveness, which (let’s be honest) is everyone’s dream. Not everyone is going to get his or her loans forgiven. In particular, most private student loans have no forgiveness options at all. And even for federal loans, the forgiveness programs out there have tricky eligibility requirements. But these forgiveness programs are real, they are out there, and they can be hugely beneficial to student borrowers. Here’s an overview:
- Public Service Loan Forgiveness (PSLF). This is probably the most well-known loan forgiveness program currently available, and it provides for the complete forgiveness of a borrower’s federal loan balance after 10 years of repayment if the borrower works full-time in qualifying public service employment. But the eligibility requirements can be a little tricky. You have to have the right type of loan (not all federal loans are eligible), the right type of repayment plan (not all repayment plans are eligible), the right type of employment (not everything you might consider “public service” will qualify), for the right amount of time (120 payments over 10 years that satisfy all the above eligibility requirements). That’s a lot to remember. And since the program is not retroactive prior to 2007, we won’t know how this program will actually work out until 2017. But a lot of borrowers stand to benefit from this, as long as they do everything right. No pressure.
- Teacher Loan Forgiveness. There are forgiveness options available to teachers who teach certain subjects and work in certain types of schools in traditionally underserved communities. Unlike PSLF, you don’t have to work for 10 years to start seeing the benefits, although the amount that gets forgiven is capped. You can subsequently get the rest of your loans forgiven through PSLF (as long as you meet those requirements).
- Civil Legal Assistance Attorneys Assistance. There are limited forgiveness programs available to attorneys employed in civil legal services. These forgiveness awards are capped on an annual basis, and borrowers who benefit from these awards may not necessarily be making progress towards PSLF at the same time.
- Perkins Loan Forgiveness. Federal Perkins loans are special and have their own provisions governing repayment, default, and loan forgiveness. Perkins loans are also eligible for loan forgiveness if you work in certain specialized professions in education, health care, law enforcement, the military, the PeaceCorps or AmeriCorps, or as a public defender or prosecutor. Forgiveness comes in “chunks” after a certain number of years of service.
- Employer-based Loan Forgiveness. While the above loan forgiveness programs are tied to professional fields, specific employers also may offer loan forgiveness. For example, the National Institutes of Health and the National Health Service Corps both offer generous loan forgiveness to employees who meet certain criteria. PeaceCorps and AmeriCorps volunteers may be eligible for forgiveness or cancellation of interest for their federal loans while serving. Check with your employer to see if there are any loan forgiveness or repayment assistance programs available to you.
- Repayment Plan-Based Loan Forgiveness. The above forgiveness programs are largely tied to employment, but certain federal loan repayment plans have their own built-in loan forgiveness provisions. Income-Based Repayment (IBR) and Income-Contingent Repayment (ICR) both provide for loan forgiveness after 25 years of repayment in the program, while the new Pay-As-You Earn (PAYE) program provides for loan forgiveness after 20 years of repayment in the program.
- School-Based Loan Forgiveness. Many schools, particularly professional schools (such as law schools) offer their graduates loan repayment assistance (which is essentially loan forgiveness) if they work in certain public service professions. Schools provide lump-sum payments to borrowers (usually based on need-based criteria) that may start off as a “loan” that you can use to pay your student loan bills (federal or private), and then as long as you remain eligible for the program, the “loan” converts to a grant that you don’t have to repay. My law school offers such a program. Check with your school’s financial aid office to see if they offer any loan repayment assistance or forgiveness programs.