Student loans have gotten huge for some graduates. It’s no wonder that there is increasing interest in how to get your student loans forgiven. Unfortunately, there are very few circumstances in which you can get the government to pay off your loans or otherwise cancel your student loan debt.
Student Loan Forgiveness Program
There is a small subset of jobs that qualify for student loan forgiveness, and believe it or not, being in the military is not one of them. (Theoretically, you are supposed to qualify for help paying for college by serving before you go to college, so the idea is that you wouldn’t need help with student loans.)
The most commonly used student loan forgiveness program involves either working in “public service,” or as a teacher.
For the regular direct type of student loans, the teacher student loan forgiveness program requires you to teach for five complete AND consecutive at a school that serves primarily low-income students. The exact schools that qualify are ones that:
- are in a school district that qualifies for Title I funds
- have been selected by the U.S. Department of Education based on being more than 30 percent students that qualify for Title I services
- is listed in the an annual directory of schools designated as low-income schools for teacher cancellation benefits.
Or, any school operated by the Bureau of Indian Education.
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If the school starts out meeting the criteria, but then does not in later years, you can keep counting the following years as part of your 5 years, even if the school stops being qualified.
If you meet all of those requirements, you can get up to $5,000 of loan balance forgiven, or canceled.
If you meet all of the requirements, and you teach math or science at a secondary school, or if you teach special education, then you can get up to $17,500 in student loan debt wiped out.
Public Service Loan Cancellation
Getting your student loans forgiven for public service is probably the best deal, but there are a couple of catches.
First, you have to qualify as working in public service. The easiest way to qualify is to work directly for the government, whether federal, state, or local. In other words, if you work for the State of California, or the City of Denver, that qualifies. You also qualify if you work for a 501(c)(3) non-profit organization. Certain other not-for-profit organizations can count too if they are in the right line of work. Full-time in the Peace Corps or AmeriCorps also counts.
Unlike the teacher student loan forgiveness program, the public service version requires that you make a minimum of 120 payments, while working qualified employment, before you can apply.
The most straightforward version of this is to work for 10 years at a qualifying job and make each payment for a total of 120 payments. However, the payments do not have to be consecutive, so if you worked 5 years for a non-profit, then 2 years for a law firm, and then 5 more years for the government, that would qualify (assuming you made all the payments). Obviously, any deferments of payments don’t count as payments made, so if you have two, six-month, deferrals or forbearance, you would have to have 11 years to get the 120 required payments.
The payments have to be “regular” monthly payments, so you can’t pre-pay a year’s worth of payments and qualify early. That means this loan forgiveness option takes at least 10 years before it is available.
Here is the biggest catch. Out of the many student loan repayment options only TWO kinds of them count for loan forgiveness. More to the point, only while using those two types of repayment plans do your payments count toward the 120 required payments.
One of the allowable repayment methods is the 10-year repayment plan. If you are scratching your head at that one, you are not alone. You will pay off your student loans in 120 payments. The reason this exists is that the other allowable repayment plans are the income-driven repayment plans. Those would have lower payments, typically, so if you spent part of the time using the 10-year repayment and then switched to an income-based repayment, then you would get credit for all the 10-year payments you made.
Income-driven repayment plans typically take approximately 10% of your discretionary income as a payment. So, the lower your earnings, the better this payment plan is for you. Remember, that at the end of 20 years (or 25 years for some plans) whatever is left on your student loan balance is forgiven, regardless of what your job is.
- You make 120 payments (10 years worth)
- Your work for government or non-profit
- You select an income-based repayment plan
- Whatever is left is forgiven
- But, really you are only forgiving years 10-20 as a public servant, because they would have been forgiven after 20 years anyway.
Is Public Service Loan Forgiveness Worth It?
If you really want to work in public service, or if that is just where you end up, it is definitely worth looking into this program. It makes the most sense for those who are just starting their career. Typically the salary is lower (so you get lower loan payments while waiting the 10 years). And, if you choose an income-based repayment right out of college, you get credit for all of your payments toward that 120 total payments.
On the other had, if you are already in the middle of your career, and you aren’t already using an income-based repayment plan, it might not be worth it. Keep in mind that any payments you made under the extended or graduated repayment plans don’t count, and you have to make 120 payments AFTER you change to the income-based plan. In other words, it would take you 10 years FROM NOW in order to qualify. If your salary is still low enough, it might be worth doing the math.
But, if you’ve been paying on your loans for 15 years, switching now, means you’ll pay another 10 years, for 25 years total, and since all payment plans are set to basically pay off in 25 or 30 years, you won’t be gaining much.
You can find more information at the U.S. Government’s student aid website.