Fall is approaching rapidly, which means it’s nearly time for students to head back to class. Meanwhile, recent college grads continue to look for work and try to figure out exactly how they’ll be paying for their sizable student loans.
For most college graduates, those student loans will follow them for decades after graduation. There are a few opportunities, however, to have large portions of your loans forgiven after a period of time. Each program has its own particular set of criteria, so make sure you fully understand the requirements of each program before you make the necessary commitments.
Income-based repayment plans
If you’ve decided to participate in an Income-Based Repayment (IBR), Income-Contingent Repayment (ICR) or Pay As You Earn repayment plan, you may be eligible for loan forgiveness. Here’s how that works:
If a borrower’s loan is not fully repaid after making the required number of qualifying payments, the remaining principal balance and accrued interest on the loan is forgiven. The number of payments required for loan forgiveness depends on the repayment plan.
- Income-Based Repayment is 25 years (300 qualifying payments)
- Income-Contingent Repayment is 25 years (300 qualifying payments)
- Pay As You Earn is 20 years (240 qualifying payments)
Always check with your lender/servicer for more specific information. And remember – under current IRS rules, all forgiven amounts are considered taxable income. That means you’ll be responsible for paying taxes on the forgiven amount, in the tax year in which it is forgiven.
Loan forgiveness programs
If you’re hoping to have a slightly larger portion of your loans forgiven, you may want to consider Public Service Loan Forgiveness (PSLF) or Teacher Loan Forgiveness (TLF).
The PSLF program was established to encourage individuals to enter and continue in full-time public service employment by forgiving the remaining balance of their Direct Loans after they have made 120 qualifying monthly payments while employed full time by certain public service organizations. Additional requirements of this program state that eligible individuals must:
- have made their first qualifying payment after October 1, 2007;
- be a full time employee of a qualifying public service organization at the time of each of the 120 full, on-time, scheduled monthly payments; and
- be enrolled in a qualifying repayment plan.
The TLF program was created to encourage individuals to pursue teaching careers.
Under this program, you must teach full-time for five complete and consecutive academic years in certain elementary and secondary schools and educational service agencies that serve low-income families. There are a few other requirements for eligibility, most involving dates of service and when the loan was taken out, but if you meet all of the qualifications, you may be eligible for forgiveness of up to a combined total of $17,500 on Direct Loans, Federal Family Education Loan (FFEL) Program loans and Federal Stafford Loans. Direct PLUS loans are not eligible for this type of forgiveness.
Discharge
In addition to the forgiveness programs listed above, there are certain calamitous circumstances where your student loan will be completely discharged. These include discharge in the event of total and permanent disability, discharge due to the death of the borrowing student (or the borrowing parent, in the case of parent PLUS loans) and – on rare occasions – discharge due to bankruptcy filing.
Visit StudentAid.ed.gov for a complete list of discharge and cancellation events.
More information on student loans:
- Income-based repayment for student loan debt
- Three most important steps for handling student loan debt
Need help understanding your student loans? Unsure what programs are available to help you pay back your debt and get your finances in order? MMI now offers student loan counseling. Our trained counselors can help you understand your options and create a plan to get your student loan debt under control. Visit our Student Loan Counseling page for more details.