Today we have a guest post from Tina Roth of ProfinanceBlog.com
One of the most common dreams of student loan borrowers is imagining themselves free from all the debts. But with high levels of debt, that can mean many years of payments before the borrowers can pay off their debt. Fortunately, there are student loan forgiveness programs that can help whittle down the debt or even pay it off completely.
But how does that work?
I want to discuss some of the better-known programs which help qualified borrowers get federal student loan forgiveness. First, though, let’s go over the basics.
I’m going to start by bursting your bubble. Getting rid of your student loans with a loan forgiveness program isn’t a fast process. It’s less the nuclear bomb of destroying your debt, and more…beach erosion. You can picture Student Loan Forgiveness programs as little lapping waves pulling your debt out to sea.
The Little Lapping Waves
Many people can qualify for student loan forgiveness programs, but they aren’t a magic bullet for getting out of debt easily and quickly. It can take years of regular payments and hard work to qualify for forgiveness.
Most of the people who qualify for student loan forgiveness qualify because they don’t make a lot of money. Many of them take on lower-paying public service jobs like teaching or a military career.
Not all loans are eligible for forgiveness programs, either. If you used private loans to pay for college, you’re going to have a lot fewer options than if you used federal Direct Loans. You may have to consolidate loans to be eligible for some programs, and you may not be able to do this with all your loans.
Most loan forgiveness programs also require regular payments over time. Many of them penalize borrowers who miss or make late payments. And none of them are automatic. You’ll have to apply for any program, and some require ongoing paperwork.
And while any forgiveness from work-based programs (like the Teacher Forgiveness Program) won’t be subject to income taxes, that’s not true for all programs. You can end up with a big tax bill the year your loans are forgiven.
But let’s move on. There are forgiveness programs that can help you erode your debt if you qualify.
Teacher Loan Forgiveness
The most commonly known federal loan forgiveness programs help teachers. While most eligible teachers can get up to $5000 in loan forgiveness, secondary school science and math teachers and special education teachers can get up to $17,500.
Eligibility for the forgiveness:
The program targets teachers who work in low-income schools. You can check this database of qualifying low-income schools at the Department of Education website.
- You have to be a highly qualified teacher.New teachers must hold at least a bachelor’s degree and demonstrate subject matter mastery by taking state exams or taking additional coursework. Experienced teachers must also meet evaluation standards.
- Have to work as a full-time teacher for at least five consecutive years.
- Your student loan should not be in default.
After finishing your 5th year in a school as a teacher in a qualifying school, you can apply for the debt forgiveness program. You can find the application on the Department of Education’s website. The chief administrative officer of the qualifying school will need to fill out the certification section.
Public Service Loan Forgiveness:
One of the most generous loan forgiveness programs helps public servants. You can apply for the Public Service Loan Forgiveness (PSLF) plan after serving in the public sector for ten years and after making 120 qualifying loan payments. Unlike the teacher program, there is no limit on the amount forgiven.
Teachers, don’t discount this program. You can be eligible for this as well as the Teacher Loan Forgiveness program. You may even be eligible for this program if you don’t qualify for the Teacher Loan Forgiveness program!
Eligibility for getting the forgiveness:
To participate in the program, you need to be a full-time employee of a Government organization, a 501(c)3 charitable organization or another qualifying nonprofit. You’ll also need to make 120 qualifying monthly payments after October 1, 2007. Payments must be on time and in full, and early or extra payments do not count.
You can only get forgiveness for qualifying Direct loans.
To make sure you are on track to participate, you’ll need to do some paperwork. You should complete an Employment Certification for Public Service Loan Forgiveness form annually or when you change jobs to make sure you maintain eligibility for the program.
After making your 120 qualifying payments, you can submit an application for forgiveness. The first time eligible borrowers will be able to submit the application is October 2017.
Certain military personnel, in addition to being eligible for the PSLF plan, can have their loans paid by the Department of Defense. Veterans with service-related disabilities are eligible for loan forgiveness as well.
If your school was closed while you were enrolled and you were unable to complete your program (or a similar one), you may be eligible for the Closed School Discharge.
If you have been certified as having a complete and permanent disability, you can apply for a Total and Permanent Disability (TPD) Discharge.
You can find out about these and others on the Department of Education’s website.
Income Based Repayment Plans
Income-based repayment (IBR) programs can get you student loan forgiveness, but you won’t get rid of your payments anytime soon. IBR programs require you to make 20-25 years of payments before your loan debt can be forgiven.
However, if you have trouble meeting your payments, IBR can save your credit score and sanity. Plus, you may qualify for lower qualifying payments until you can qualify for one of the other programs.
There are 4 basic types of federal income-based repayment plans:
- Revised Pay As You Earn Repayment Plan (REPAYE Plan)
- Pay As You Earn Repayment Plan (PAYE Plan)
- Income-Based Repayment Plan (IBR Plan)
- Income-Contingent Repayment Plan (ICR Plan)
Your choice of IBR plan may be limited by the type of loan you hold and when you took out your loans.
Eligibility for the forgiveness:
To become eligible for this program, you must demonstrate that repaying your loan under regular payments would be a hardship based on your income and family size.
As your income and family size changes, so do your payments. You must recertify each year so that your loan servicer can recalculate your payments.
If you use an income-based program, you should be aware of a couple of drawbacks. Your loans will continue to accrue interest, so you may end up owing more rather than less even if you make regular (but low) payments. You’ll also owe income taxes on any amounts forgiven when you complete an income-based repayment plan.
If you are thinking about applying for the student loan forgiveness, you may want to contact your lender to help you navigate the process.
Once you opt into a forgiveness program, make sure you do all the required payments.
While Federal Student Loan Forgiveness Programs can help you get out of debt over time, they aren’t a quick fix for borrowers. Still, with some hard work and regular payments, you may be able to get the government to pay off your student loans…eventually.
Remember. Eventually, little waves can wash giant boulders into the sea.
Have you used or are you working with a student loan forgiveness program?
Tina Roth is a freelance writer and blogger who writes about personal finance and money saving strategies. She is a regular contributor to many finances. She also maintains a personal finance blog on ways to save money and live a frugal life.
*Part of Financially Savvy Saturdays on brokeGIRLrich. *