Ever wondered what it would be like to wake up one day and find that all your student debt has been paid off?  While your student debt is unlikely to disappear overnight, there are ways to get it forgiven over time. However, there are a lot of catches, from who’s eligible for what program to the taxes you’ll need to pay. Read on to learn more about student loan forgiveness.

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.

There are four big loan forgiveness programs for federal student loans:

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

Overview

An overview of student loan forgiveness programs
Note: Public service includes employment in: government organizations at any level, 501(c)(3) non-profits, and other types of non-profits that provide qualifying public service.

If you’re interested in just seeing your repayment numbers (e.g., monthly payment, total paid, interest paid), check out our Student Loan Repayment Calculator. You’ll be able to model scenarios with PSLF, TLF, and loan forgiveness after IDR.

Public Service Loan Forgiveness (PSLF)

The PSLF Program provides people in public service jobs with a path to debt forgiveness after 10 years. The Program forgives the remaining balance on your federal loans after you have made 120 monthly payments under a qualifying repayment plan while working full-time for a qualifying employer. To receive forgiveness you must remain employed with a qualifying employer at the time you apply for and receive forgiveness for your loans. Under the program, the full amount of your federal student loans is currently eligible for forgiveness.

An estimated 25% of the US workforce is employed in what can be classified as public service, and many may be eligible for loan forgiveness under the PSLF Program. However, borrowers regularly complain that they are not receiving sufficient information about eligibility for these benefits. As a result, there is often significant confusion as to which types of employment are eligible under the Program.

Employment eligibility

You must be employed with one of the following types of organizations to qualify for PSLF:

  • Government organizations at any level (federal, state, local, or tribal)
  • Not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code
  • Other types of not-for-profit organizations that are not tax-exempt under Section 501(c)(3), if their primary purpose is to provide certain types of qualifying public services
  • AmeriCorps or Peace Corps volunteer

Note that for-profit as well as not-for-profit religious and partisan organizations do not qualify for PSLF.

To qualify for PSLF you must work on a full time basis for a qualifying employer. For PSLF, you are generally considered to work full-time if you meet your employer’s definition of full-time or work a minimum of 30 hours per week, whichever is greater. If you are employed in more than one qualifying part-time job simultaneously, you may meet the full-time employment requirement if you work a combined average of at least 30 hours per week with your employers.

Loan qualification

Which types of loans qualify for PSLF?

  • Direct Consolidation Loans
  • Direct Subsidized and Unsubsidized Loans
  • Direct PLUS Loans

While the Federal Family Education Loan (FFEL) Program and the Federal Perkins Loan Programs do not qualify for PSLF, they may become eligible if you consolidate them into a Direct Consolidation Loan. However, only qualifying payments that you make on the new Direct Consolidation Loan can be counted toward the 120 payments required for PSLF.

Requirements

  • Make 120 qualifying payments
    • After October 1, 2007
    • On-time (no later than 15 days after the scheduled due date)
    • Each month, satisfying the installment amount due for that month
    • When the loan is being actively billed, and is not in a default status
  • Work full-time at a qualifying employer
  • Have eligible loan types
  • Payments must be under a qualifying repayment plan. Qualifying plans include:
    • Income-Based Repayment (IBR)
    • Pay As You Earn (PAYE)
    • Revised Pay As You Earn (REPAYE)
    • Income-Contingent Repayment (ICR)
    • 10-year Standard Repayment (Even though the 10-year Standard Repayment Plan is also a qualifying repayment plan for PSLF, you cannot benefit from PSLF unless you enter an income-driven repayment plan)

Application process

Once you’re eligible, you should use the PSLF Help Tool to prepare your application and submit it with the appropriate documentation.

Teacher Loan Forgiveness (TLF)

Teacher Loan Forgiveness is a federal loan forgiveness program designed specifically for teachers in the public sector.

Under the Teacher Loan Forgiveness Program, if you 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, and meet other specific qualifications, you might be eligible for loan forgiveness of up to $17,500.

Note that these programs do not apply to any private student loans that teachers might have taken out.

Loan qualification

  • Direct Subsidized and Unsubsidized Loans
  • Subsidized and Unsubsidized FFEL Loans

If you have PLUS loans only, you are not eligible for Teacher Loan Forgiveness.

Requirements

Note that the Department of Education differentiates between service completed before and after Oct. 30, 2004 in determining the eligibility requirements for different levels of loan forgiveness.

Application process

In order to apply you have to complete the Teacher Loan Forgiveness Application and submit it to your loan servicer at the end of your fifth consecutive teaching year. If you taught at different schools during different academic years, the chief administrative officers from all of the schools must certify your eligibility.

Perkins Loan Cancellation and Discharge

Federal Perkins Loans are low-interest federal student loans for undergraduate and graduate students with exceptional financial need.

If you perform certain types of public service or are employed in other specific areas you might be eligible to have part or all of your Federal Perkins Loan cancelled. For each complete year of service, a percentage of the loan may be cancelled. The total percentage of the loan that can be cancelled depends on the type of service performed but can be up to 100%.

Employment eligibility

People employed in the following areas might be eligible for Perkins Loan Cancellation:

  • Special education teachers
  • Speech Language Pathologist
  • Nurse or medical technician
  • Volunteer in the Peace Corps or ACTION program (including VISTA)
  • Member of the US armed forces
  • Law enforcement or corrections officer
  • Fire Fighters
  • Head Start worker
  • Public Defenders
  • Child and Family Service workers
  • Librarians
  • Professional provider of early intervention services.

Loan qualification

  • Federal Perkins Loan

Requirements

You must have a federal Perkins Loan and work in one of the above professions to qualify. The cancellation criteria and the amount forgiven vary by employment type and the type of loan you have. For a complete breakdown go to Studentaid.gov. 

Application process

Unfortunately, there is no standard application form for Perkins Loan cancellations. You will have to contact the school that you were attending when you received the loan to get the specifics.

Forgiveness After Income-Driven repayment (IDR) Plans

You can potentially qualify for debt forgiveness for all four types of income-driven student 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) and Income-Contingent Repayment Plan (ICR Plan)).

Under all four plans your monthly payment is capped at a fixed percentage of your discretionary income with borrowers making payments for a specific number of years. Any remaining loan balance is then forgiven if your federal student loans aren’t fully repaid at the end of the repayment period. You can check out our Definitive Guide to Income-Driven Repayment Plans to learn more about the details of each plan.

For any of the income-driven repayment plans, periods of economic hardship deferment, periods of repayment under certain other repayment plans, as well as periods when your required payment is zero will all count toward your total repayment period. Whether you’ll have a balance left to be forgiven at the end of your repayment period depends on a number of factors, such as how quickly your income rises and how large your income is relative to your total debt.

Loan qualification

Anyone with federal student loans that qualifies for either the PAYE, REPAYE, IBR, or ICR repayment programs is eligible for forgiveness in line with the criteria attached to each individual program.

Requirements

Forgiveness with Pay As You Earn (PAYE)

The PAYE program caps your monthly payment at 10% of your discretionary income. Borrowers make payments for 20 years. Any remaining balance is then eligible for forgiveness.

Forgiveness with Revised Pay As You Earn (REPAYE)

Under REPAYE, your payments will be capped at 10% of your discretionary income. Undergraduate loans are forgiven after 20 years and graduate school loans are forgiven after 25 years.

Forgiveness with Income-Based Repayment (IBR)

With IBR, your student loan payments are capped at 10 to 15% of your discretionary income. After making consistent payments under IBR for 20 or 25 years (terms depend on when you borrowed), any remaining loan balance will be forgiven.

Forgiveness with Income-Contingent Repayment (ICR)

With ICR, you’ll either pay 20% of your discretionary income or what you’d pay on a fixed 12-year plan, whichever is less. Forgiveness occurs after 25 years.

Application process

To apply, you must submit an application called the Income-Driven Repayment Plan Request. You can submit the application online at StudentLoans.gov or on a paper form, which you can get from your loan servicer. When you apply, you’ll be asked to provide income information.

How to choose the right loan forgiveness program for you

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.