Overwhelmed by Student Loans? Find Some Relief With Debt Forgiveness

Students dressed in their caps and gowns walk toward the arena for their college graduation in Orlando, Fla.
University of Central Florida students walk toward the Addition Financial Arena on commencement day in Orlando, Fla., on May 4, 2018. Aileen Perilla/The Penny Hoarder

Ever wonder what life would be like if you could make your student loans disappear?

It’s possible, but it isn’t magic. 

Or immediate.

Or easy.

Or likely. (Sorry.)

But considering the mounting pile of outstanding student debt in U.S. — at $1.5 trillion, student loans were the largest non-mortgage source of household debt in 2018 — we should at least consider every option for wiping it out, right?

If your student loans have become more than you can handle, seeking forgiveness or discharge of your debt could be an option. Check out this Penny Hoarder guide to student loan forgiveness so you’ll know all your options.

Understanding Student Loan Forgiveness, Cancelation and Discharge

Before we dig into individual programs, let’s cover the ground rules.

First, a word about words: Forgiveness, discharge and cancellation essentially mean the same thing when you’re thinking about your student debt — they mean you no longer have to pay the remaining balance on your loan — but the terms are usually applied in different circumstances:

  • Forgiveness is usually used in cases where you qualify because of your job or employer. 
  • Discharge typically refers to other reasons for not paying the debt, such as your financial situation. 
  • Cancellation is a more general term that often covers both.

All of the programs covered here are only available for federal student loans, not private student loans. And depending on the program, there are requirements for which types of federal loans qualify.

Additionally, these programs typically take years to qualify for — sometimes as much as 25 years. There’s one exception to this rule, but it’s probably the least desirable way for getting rid of your debt. (Spoiler alert: It’s death.)

Many of the options depend on your job. If you work in public service or choose a specific profession, you can receive forgiveness for a loan after a specified amount of time, during which you must document your employment.

If you don’t have a job through which you can receive loan forgiveness, your other choices for forgiveness or discharge become limited to income-driven options or extreme circumstances, like becoming permanently disabled or your school closing.

Additionally, although you might celebrate wiping out your student loans, understand that you might be trading your student loan debt for a big tax bill, depending on the program. 

Pro Tip

If you borrowed before July of 2010, you’ll need to consolidate your loans to qualify Public Service Loan Forgiveness and some income-driven repayment plans.

In general, if your loan is wiped out because you worked in public service, you won’t owe federal taxes. And if you die or are permanently disabled, you don’t owe taxes on the forgiven amount (and neither do your survivors). Pretty much everyone else can expect to get a bill from Uncle Sam.

But even if your forgiveness isn’t subject to federal taxes, you could still be on the hook at the state level, so find out beforehand whether you’ll be liable for taxes and plan accordingly.

We’ve broken down the programs by work and non-work qualifications. We’ve also included “scam alerts” throughout since, unfortunately, there are plenty of unscrupulous individuals and companies out there who prey on the unsuspecting and often desperate people overwhelmed by student loan debt. 

With that in mind, let’s dive in.

Student Loan Forgiveness Based on Your Job

If you’re committed to a life of helping others, whether it’s by working for the government or a non-profit or by choosing a public service profession, you could qualify for student loan forgiveness.

This is not a commitment to be taken lightly, as it means you’ll have to ensure that your loans qualify, stay current on your payments throughout the process and stick with a job that qualifies for forgiveness. 

And while you may graduate ready to give back through a career in public service, a lot can change over those qualifying years — whether it’s adding family responsibilities to the mix or simply realizing you don’t like your job.

Pro Tip

Scam alert! It’s illegal for anyone — including companies that offer to “help” you repay your student loans — to ask for your federal student aid user name and id. Never give that info out.

“There is danger and risk with that because you don’t know what is necessarily going to occur,” said Melinda Opperman, executive vice president at Credit.org. “What if you change professions halfway through and you don’t do the whole 10 years? Circumstances change.”

If you do change your mind and switch to a non-qualifying job, you’ll be responsible for paying the remaining amount you owe.

Public Service Loan Forgiveness

The Public Service Loan Forgiveness program is probably the most well known, but for all the wrong reasons.

Out of the approximately 76,000 PSLF applications that were processed by March 2019, 518 applications were approved. For those who didn’t major in math, that’s less than 1%. 

And the program that was supposed to fix the problem — Temporary Expanded Public Service Loan Forgiveness (TEPSLF)? Yeah, it turns out the acceptance rate for that one nearly matches the original.

Pro Tip

Scam alert! When it comes to federal student loan repayment applications, there’s nothing a company can do for you that you can’t do for free on your own.

But if you have your heart set on serving the public at a government or non-profit entity and are facing a mountain of student loans, then the Public Service Loan Forgiveness (PSLF) program may be the way to wipe out your debt.

Be prepared for a long wait — it takes a minimum of 10 years to qualify — and to follow a lot of rules in regards to your loan and employment eligibility. To help you navigate the process, check out these seven essential questions to ask about Public Service Loan Forgiveness.

Teacher Student Loan Forgiveness

No one goes into teaching for the money. But when student loans leave you thousands of dollars in debt, scraping out the payments on a teacher’s salary can be downright overwhelming.

Fortunately, there’s a specific Teacher Student Loan Forgiveness program for those who work in underserved communities and/or subject areas. 

Forgiveness will be dependent upon where you teach, what you teach and how long you teach, and the maximum amount you can receive is $17,500. But you can discover additional options for graduating from student debt with these teacher student loan forgiveness programs.

Nursing Student Loan Forgiveness

Medical debt can be an additional burden for students, so nursing student loan forgiveness offer some help with the debt. 

In addition to a couple of specific loan-forgiveness programs for nurses, you can also find debt relief through programs at some hospitals. Eligibility requirements can include holding an advanced degree, having a specific loan type or working in a specialized department. 

Other medical professionals, including doctors, can find student loan relief at the national and local level through the Association of American Medical Colleges.

Perkins Loan Forgiveness

The Perkins loan program program ended on Sept. 30, 2017, but you’re still on the hook for paying off any of the Perkins loans you took out. That said, if you work in public service — including teaching, law enforcement and the military — you could qualify for a partial or total discharge of your Perkins loan.  

Depending on your career, you could receive 100% loan cancellation for five years of service, which is distributed in annual increments.

Student Loan Discharge That Isn’t Based on Employment

Not taking the employment path to loan forgiveness? Then you’ll likely be seeking forgiveness based on your economic status or a catastrophic circumstance.

Income-Driven Repayment Program Cancellation

Although income-driven repayment plans technically offer a loan discharge at the end, you’ll be waiting decades for that moment. But that doesn’t mean you don’t need them.

To qualify your loans for most forgiveness programs, you’ll need to apply for one of these plans. Each forgiveness program has its own rules about which IDR qualifies.

And if you’re struggling to make monthly student loan payments, these programs do offer some relief in terms of monthly payments (but you’ll definitely pay more in interest by the end compared to the standard repayment plan);

  1. Pay As You Earn Plan (PAYE)

    Any borrower with eligible direct federal loans can apply. FFEL Program and Perkins loans are eligible if they’re consolidated. You’ll be eligible for discharge after 20 years of repayment.

  2. Revised Pay As You Earn (REPAYE) Plan

    Any borrower with eligible direct federal loans can apply. FFEL Program and Perkins loans are eligible if they’re consolidated. You’ll be eligible for discharge after 20 years of repayment for undergraduate loans or 25 years if the debt includes graduate loans.

  3. Income-Based Repayment (IBR) Plan

    Any borrower with eligible direct federal loans, including FFEL Program loans, can apply. Perkins loans are eligible if they’re consolidated. You’ll be eligible for discharge 20 years if you took out your first loan after July 1, 2014, and 25 years if you took out your first loan before July 1, 2014.

  4. Income-Contingent Repayment (ICR) Plan

    Any borrower with eligible direct federal loans can apply. FFEL Program loans, Perkins loans and Plus loans made to parents are eligible if they’re consolidated. You’ll be eligible for discharge after 25 years of repayment.

You can learn more details in this guide to income-driven repayment plans.

Parent Plus Loan Forgiveness 

Because Plus loans for parents are so restrictive in terms of repayment options, receiving forgiveness is particularly difficult. In fact, it’s nearly impossible until you consolidate them, thus making them eligible for an Income-Contingent Repayment plan.

But if you’re a parent who’s still dealing with your own student loans, this is not the time to combine forces, as your own student loans have more options for payment plans and for forgiveness.

Pro Tip

Scam alert: Loan forgiveness typically takes years. Steer clear of a company that promises you fast loan forgiveness or says it has “special access” to federal programs you’ve never heard of.

“If parents have loans for their children and their own loans for their own education, they should never ever combine them together in a consolidation loan,” said Heather Jarvis, an attorney who specializes in student loans. “[The student loans] would essentially be contaminated by the parent loans.”

For more details, check out this step-by-step explanation about how to wipe out your Parent Plus loans.

Student Loan Disability Discharge

Struggling with student loans is stressful enough without also dealing with a disability. 

If you develop a total and permanent disability after taking out federal student loans, you are eligible to have your debts forgiven. If you’re a military veteran, the discharge will be automatic, but if you’re a civilian, the process can take three years to qualify for the discharge.

Here’s how a TPD discharge could wipe out your student loan debt.

Student Loan Death Discharge

It’s not a pleasant topic to consider. But if a borrower dies and has federal student loans, the loan gets canceled, according to the Federal Student Aid Office of the U.S. Department of Education. Parent Plus loans are discharged if the parent or the student dies.

Check out this article for more info about what happens to student loans when you die.

Student Loan Bankruptcy Discharge 

You may have heard that student loans cannot be discharged in a bankruptcy. That’s true… most of the time. But if you’re able to prove that repaying your student loans would result in an “undue hardship” you could qualify for a student loan bankruptcy discharge. Don’t get too excited, it’s extremely rare.

Closed School Discharge 

If your school closes before you’re able to complete your program, you may be eligible for a 100% discharge of your federal direct loans, FFEL program loans or Perkins loans. You’ll need to ask your loan servicer for a loan discharge application. 

For more details about the program, check out the Department of Education’s closed school discharge program. 

False Certification Discharge 

If you think your school falsely certified your eligibility for federal student aid, you could qualify for a false certification discharge.

Unpaid Refund Discharge 

If you withdrew from a school, but the school didn’t return the funds to your loan servicer, you could be eligible for an unpaid refund discharge.

Can I Just Wait for Total Student Loan Forgiveness?

If you listen to the news, you may be thinking your way to forgiveness is just around the corner with a catch-all cancellation of student loans.

So can you simply wait to see how the next election pans out to find out if all your loans are forgiven? 

In a word: NO.

“If someone was going to make a financial decision based on that, they would regret it,” Jarvis said.

Because here’s the thing: Election promises are less “promises” than an idea that doesn’t pan out. If you decide to wait it out and see if you can just skip out on paying student loans, you’ll accumulate interest and late fees, wreck your credit score — and worse.

Among the actions the government can take for defaulting on your student loans is garnishing your wages, tax returns and Social Security checks. And unlike private loans, federal student loans never go away, which means the debt — and consequences — will follow you until your death.

“You can’t mess with the federal government,” Opperman said. “They’re not going to get tired of coming after you for your loans — they will do it forever.”

So if you’re waiting, start paying. You can look for alternatives in the meantime and put that college education to work to help you figure out how to start paying down your student loans.

Tiffany Wendeln Connors is a staff writer/editor at The Penny Hoarder. Read her bio and other work here, then catch her on Twitter @TiffanyWendeln.