I’ve been asked again and again at college visits and financial literacy seminars, “How do I get my student loan debt forgiven?” Or worse, “I don’t have to worry about taking on more loans for more degrees. I’ll get the debt forgiven.”
Many students have been misled by the media coverage around loan forgiveness. They have heard (incorrectly) that having your student loan debt erased is easy and happens quickly. Here’s the loandown on what it takes to have your student loans forgiven. This is information you can take straight to the bank.
- Loan forgiveness may not apply to private lenders. If your private student loan lender offers loan forgiveness, it is typically given only in extreme circumstances, such as the borrower’s death or total and permanent disability.
- Teacher Loan Forgiveness program is available for loans in the federal loan programs — Direct and Federal Family Education Loan Program (FFELP) loans. Borrowers have to meet the criteria for when the loan was first disbursed, where they teach, and how many consecutive years they teach in an eligible school. Also, the forgiveness amount is capped at $17,500. This does not include PLUS loans.
- Public Service Loan Forgiveness is only available for Direct Loans. Among other criteria, you must have made 120 payments for the full scheduled amount on or after October 1, 2007. You also have to be employed full time in a qualifying public service job.
- Perkins Loan Cancellation and Discharge has many variables and has no standard application – you need to contact the school that made the loan to you.
- Federal loans under certain repayment plans – such as Income-Contingent Repayment (ICR) or Income-Based Repayment (IBR) – may be eligible for forgiveness after 25+ years of repayment. The forgiven amount may be taxable.
You can find out a lot more about the loan forgiveness programs for federal student loans here: http://studentaid.ed.gov/repay-loans/forgiveness-cancellation .
Remember too, student loans are only dischargeable in bankruptcy in extremely rare cases. You have to meet the high thresholds for undue hardship before the court will consider discharging them.
I’m going to stress the importance of understanding your finances, loan agreements and repayment plans. Sit down with your school financial aid officer, personal banker, or loan servicer to clarify any questions you may have. Unfortunately, I have never met a student loan borrower who has had their loan forgiven.