Forgiveness Programs

Federal Repayment Plans with Loan Forgiveness

Income-driven repayment plans, designed to help graduates who are having trouble making payments within the standard 10-year time frame, provide forgiveness for borrowers not in the public sector after a certain period of time. The plans have a two-pronged appeal: the possibility of lower monthly payments now, plus the chance for the remaining balances to be forgiven later.

  • Income-Based Repayment (IBR). Maximum monthly payments will be 15% of discretionary income. Forgiveness eligibility comes after 25 years of qualifying payments.

  • Income-Contingent Repayment. Payments are recalculated each year based on gross income, family size, and outstanding federal loan balance. Forgiveness eligibility is after 25 years of qualifying payments.

  • Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE). Maximum monthly payments will be 10% of discretionary income. Forgiveness eligibility is after 20 years of qualifying payments. The government may even pay part of the interest on the loan.

Specialized Loan Forgiveness Programs

If you work or volunteer for certain organizations, you may be eligible for additional programs that will forgive or reduce your student debt. Here are some examples:

  • Full-time teachers in low-income schools or educational service agencies. Through the Teacher Loan Forgiveness Program, teachers may be eligible for forgiveness of up to either $5,000 or $17,500 on their Federal Direct and Stafford Loans after five consecutive years of service. The higher amount is for certain math, science, and special-ed teachers.

  • Medical and nursing school graduates. Working in underserved areas can qualify doctors and nurses for student loan forgiveness under some state programs.

Public Service Loan Forgiveness (PSLF)

What is the Public Service Loan Forgiveness (PSLF) Program?

The PSLF Program was established to encourage individuals to work in public service by forgiving the remaining balance of their Direct Loans after they have made 120 qualifying payments while employed by a qualifying employer.

What are the eligibility requirements for loan forgiveness under the PSLF Program?

You must be employed full-time by a qualifying employer when you make each of the required 120 qualifying payments on your Direct Loans, and also at the time you apply for loan forgiveness after making the last of those 120 payments, and when you receive loan forgiveness.

Are loan amounts forgiven under PSLF considered taxable by the IRS?

No. According to the Internal Revenue Service (IRS), student loan amounts forgiven under PSLF are not considered income for tax purposes. For more information, check with the IRS or a tax advisor.

Does my income level determine eligibility for PSLF?

There is no income requirement to qualify for PSLF. However, since your required monthly payment amount under most of the qualifying PSLF repayment plans is based on your income, your income level over the course of your public service employment may be a factor in determining whether you have a remaining loan balance to be forgiven after making 120 qualifying payments.

Can I be certain that the PSLF Program will exist by the time I have made my 120 qualifying payments?

We cannot make any guarantees about the future availability of PSLF. The PSLF Program was created by Congress, and Congress could change or end the PSLF Program.

I have federal student loans from a program other than the Direct Loan Program. Can I qualify for PSLF?

PSLF is available only for Direct Loans. However, if you have loans made under another federal student loan program, you may consolidate those loans into a Direct Consolidation Loan, which is eligible for PSLF.

Key Takeaways:

  • Student loan forgiveness can be earned in two ways: by working in public service or by making payments through an income-contingent payment plan for a (long) period of time.

  • Only federal direct loans qualify for loan forgiveness—you can't get it for private loans.

  • Federal loans may also be discharged under certain circumstances, if those are beyond the borrower's control. (Death or Permanent Disability)