Overview Of Federal Student Loan Forgiveness Programs

By Daniel SachsUpdated August 23, 2017

Ever wondered what it would be like to wake up one day and find that all you’re student debt has been paid off?  While you’re student debt is unlikely to disappear overnight there are ways to get it forgiven over time.

In a series of articles we take a look at federal student loan forgiveness; what types of loan forgiveness programs are out there? How do they work? What are the eligibility requirements and application processes for each of these?

So, what is loan forgiveness? Loan forgiveness is the cancellation of all or some portion of your remaining federal student loan balance. If your loan is forgiven, you are no longer responsible for repaying any outstanding balances at the time of your approval.

We focus on four principle types of federal student loan forgiveness programs:

  1. Public Service Loan Forgiveness
  2. Federal Perkins Loan Cancellation and Discharge
  3. Teacher Loan Forgiveness
  4. Forgiveness After Income-Driven Repayment Plans

Note that the Forgiveness programs outlined in these articles apply to federal loans only. None of these programs provide forgiveness for private loans or PLUS loans.

How to decide between the programs

Ultimately, selecting the best forgiveness option for you is going to come down to your specific set of circumstances. There are are a number of factors you’ll need to consider:the forgiveness amount and associated time horizon as well as, of course,what you’re actually eligible for.

In some situations, you might well be eligible for more than one forgiveness option. Determining which is the right option for you is crucial given that you can only apply for one program at a time. For instance, if you’re a teacher you might well qualify for a number of the federal debt forgiveness programs though Teacher Loan Forgiveness might be most preferable given that you might be eligible for loan forgiveness of up to $17,500 in as little as five years. Similarly, PSLF might be the appropriate option for those carrying a lot of student debt; provided you might all the eligibility requirements, under the program the full amount of your federal student loans can be forgiven.

At the same time, Forgiveness After Income-Driven Repayment Plans is often considered the least attractive program option. Since you’re paying less on monthly repayments with these plans loans will generally take significantly longer to repay (eg. IDR has a repayment period of 20-25 years)and because of higher interest rates are often more costly than repayment on a standard plan.

In addition, you’ll also need to bear in mind the tax implications of each of the forgiveness programs. Under current Internal Revenue Service (IRS) rules student loan forgiveness can be taxed as regular income depending on the program.

PSLF, Teacher Loan Forgiveness and the Federal Perkins Loan Cancellation and Discharge for teachers are all eligible for tax-free status. However, the Forgiveness with Pay As You Earn (PAYE), Forgiveness with Revised Pay As You Earn (REPAYE), Forgiveness with Income-Based Repayment (IBR), Forgiveness with Income-Contingent Repayment (ICR) and the Perkins Loan Cancellation and Discharge for VISTA and Peace Corps volunteers programs are all taxable.

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