Student Loan Forgiveness Programs (The Definitive Guide)

In 2020, America’s collective outstanding student loan balance reached $1.56 trillion. To put that into perspective, that’s roughly equivalent to the annual GDP of Mexico. And Sweden. Combined. Even when you divide it among the roughly forty-five million people holding these loans, that’s a lot to handle. So for many of those borrowers, student loan forgiveness sounds pretty appealing.

Sadly, it’s not as simple as you’d hope. Who qualifies? What kinds of loans can be forgiven? How do you apply? If you’re struggling with your student loans and looking for the answers to these questions, look no further. We’ve put together the definitive guide to student loan forgiveness for you below.

Who should look for student loan forgiveness?

Unfortunately, student loan forgiveness is only accessible for borrowers with federal student loans. If you have a mix of federal and private student loans, only the federal ones will be eligible for eventual forgiveness.

Even for the people who do qualify, forgiveness isn’t a get out of jail free card. Though the program requirements vary, the vast majority of paths to student loan forgiveness are long and intensive. You’ll probably need to make on-time payments for many years and jump through no small amount of hoops to qualify.

That said, it can still be a godsend for borrowers who can claim one or more of the following:

  • Are unable to pay off their loans years after graduating
  • Struggle to afford their monthly payments
  • Go through unusual and significant personal hardship

Types of student loan forgiveness programs

Student loan forgiveness is a broad term that we’ll use to mean any reduction or elimination of your student loan balances (whether principal or interest), which includes cancellation and discharges.

In general, there are three types of student loan forgiveness programs.

  1. Income-driven repayment: These programs limit your monthly payments to a percentage of your discretionary income, then forgive your remaining balance after a couple of decades or so.
  2. Profession-driven forgiveness: These programs can take several different forms and are sponsored by many different parties, but they all require you to work in a certain profession for some amount of years.
  3. Circumstantial discharges: In some extreme circumstances (like disability, death, or school closure) you might have part or all of your loans canceled or discharged.

Keep in mind that these aren’t official terms, but they help you categorize and understand the options available to you.

1. Income-driven Repayment Programs

As we mentioned above, income-driven forgiveness programs adjust your monthly payments down to a set percentage of your discretionary income. After you’ve paid on time for a certain number of years, they’ll forgive your remaining balance.

The percentage of your discretionary income, the number of years you have to make payments, and the type of loans that qualify all depend on the program, but you can apply for all of them in the same place free of charge.

All of them require that you not be in default, plus each one also has some additional unique requirements.

Income-Contingent Repayment (ICR)

The ICR plan lowers your monthly payment down to the lesser of 20% of your discretionary income and what you’d pay over a hypothetical fixed 12-year term. After 25 years of these payments, your balance will be forgiven.

It’s the most inclusive of the income-driven methods, with all of the following federal student loans being considered eligible:

  • Direct loans (subsidized or unsubsidized)
  • Direct PLUS loans made to graduate or professional students
  • Direct Consolidation Loans

While the following loans are not eligible on their own, they will qualify after you consolidate them into a Direct Consolidation Loan:

  • Direct PLUS Loans made to parents (this is the only program that does so)
  • Federal Stafford Loans (subsidized and unsubsidized)
  • FEEL PLUS Loans to grad students and parents
  • FEEL Consolidation loans
  • Federal Perkins Loans

Income-Based Repayment (IBR)

The IBR plan lowers your monthly payment to just 15% (10% if you’re a new borrower) of your discretionary income, and you’ll be forgiven after 25 years (20 if you borrowed after July 1, 2014). 

Additionally, your payments have to be less than what you’d pay under the standard repayment plan (the default option for all federal student loan borrowers).

To qualify for the IBR plan, you’ll have to hold one of the following loans:

  • Direct Loans (subsidized or not)
  • Direct PLUS Loans made to graduate students
  • Direct Consolidation Loans that did not repay any PLUS loans made to parents
  • Federal Stafford Loans (Subsidized or not)
  • FFEL PLUS Loans made to graduate students
  • FFEL Consolidation Loans that did not repay any PLUS loans made to parents

Federal Perkins Loans are also eligible once they’ve been consolidated into a Direct Consolidation Loan.

Pay As You Earn (PAYE)

The PAYE plan reduces your monthly payment even further, down to just 10% of your discretionary income (as long as it’s not more than the 10-year Standard Repayment Plan amount), and grants you forgiveness after just 20 years.

However, you’ll have to be a new borrower and hold one of the following eligible loans to qualify:

  • Direct Loans (subsidized or not)
  • Direct PLUS Loans made to graduate students
  • Direct Consolidation Loans that did not repay any PLUS Loans made to parents

Like the other plans, some loans are eligible once consolidated into a Direct Consolidation Loan:

  • FFEL PLUS Loans made to graduate or professional students
  • FFEL Consolidation Loans that did not repay any PLUS loans made to parents
  • Federal Perkins Loans
  • Federal Stafford Loans (Subsidized or not)
  • FFEL PLUS Loans made to graduate or professional students
  • FFEL Consolidation Loans that did not repay any PLUS loans made to parents

Revised Pay As You Earn (REPAYE)

Finally, there is the REPAYE Plan, which reduces payments to 10% without requiring that the amount be less than your Standard Repayment Plan amount.

For undergraduate loans, you’ll receive forgiveness in 20 years, though it’s 25 years if any of the loans you’re repaying were originally taken out for graduate or professional education. 

The following loans are eligible on their own:

  • Direct Loans (Subsidized or not)
  • Direct PLUS Loans made to graduate or professional students
  • Direct Consolidation Loans that did not repay any PLUS loans made to parents

And again, the following loans are eligible when consolidated:

  • Federal Stafford Loans (Subsidized or not)
  • FFEL PLUS Loans made to graduate or professional students
  • FFEL Consolidation Loans that did not repay any PLUS loans made to parents
  • Federal Perkins Loans

2. Employment-based student loan forgiveness

Employment-based programs are a much less well-defined group than income-driven plans. They have less in common with each other, but they all include in their requirements that you work in some specific professional capacity.

Both the federal and state governments offer these programs, and while they’ll usually get you out of debt faster than income-driven loans, they’ll also do less to reduce your payments in the meantime. They’re also usually less flexible and include a narrower range of federal loans.

Loan Repayment Assistance Programs (LRAP)

There are dozens of different LRAPs in every state that cater to a wide range of professions, including:

  • Doctors
  • Pharmacists
  • Lawyers
  • Teachers
  • Nurses

While these are the most common options available, it’s not a hard rule. There are options for many other career paths as well.

Generally, these programs don’t function like loan forgiveness in the traditional sense. They’re often more like scholarships that help you repay your debts up to a certain amount each year if you meet certain requirements.

Unfortunately, there aren’t any universal requirements to point to for these programs either. Different parties sponsor them in each state for various professionals, but that means you can probably find one to suit your needs and background.

Public Service

For public service workers, there are two primary paths to loan forgiveness.

First, there is the Public Service Loan Forgiveness Program (PSLF). Here are the details:

  • You’ll receive 100% loan forgiveness with no limit
  • You have to make 120 payments on a qualifying repayment plan (any of the income-driven plans we talked about before or the standard repayment plan)

The list of people who qualify as a “public service” worker includes anyone employed by a government agency or a 501(c)(3) organization (excluding religious-based nonprofits).

For the PSFL, your career choice means less than your employer choice, though qualifying employers tend to be in certain fields (teachers, nurses, 

All direct loans qualify (subsidized or not), including PLUS and consolidation loans. Federal Perkins Loans and FFEL loans are eligible as well, once you’ve consolidated them.

The only other thing you need to do to apply is to fill out the Employment Certification Form every year and whenever you change jobs. If you keep up to date with them, you’ll eventually be notified once you qualify for forgiveness.

public-service-student-loan-forgiveness

The second option is the Federal Perkins Loan Cancellation program, which can eliminate up to 100% of your outstanding balance if you work in public service for five years.

The program forgives a percentage of your loans incrementally every year, so you can get a partial benefit even if you leave before the fifth year.

Again, you’ll need to work in public services to qualify and, of course, it’s only accessible with Perkins loans. So you’ll need to use other methods if you have different loan types.

To apply, you’ll have to consult with either the school that made the loan or their Perkins loan servicer.

Teachers

Teachers can seek forgiveness under both PSFL and Federal Perkins Loan Cancellation, but they also have a forgiveness option that is unique to them that’s called (a little uncreatively) Teacher Loan Forgiveness.

If you meet the requirements for the program, you may be eligible for up to $17,500 in loan forgiveness. Here’s what you’ll need to qualify:

  • Employment as a full-time teacher for five complete and consecutive years (with at least one year after 1997-98)
  • Work at an elementary, secondary, or educational service agency that serves low-income students
  • Be considered a highly qualified teacher. That means that you attained at least a bachelor’s degree, received full state certification as a teacher, and have not had any certification or licensure requirements waived
  • The loan(s) for which you are seeking forgiveness must have been made before the end of your five academic years of qualifying teaching service.

The forgiveness is only applicable for Direct and Federal Stafford Loans (Subsidized or not in both cases).

Military

If you’re a member of the military, you may qualify for any of a dozen student loan forgiveness programs.

All of the military branches offer multiple forms of student loan support to their members, and the qualification requirements are usually less stringent (serving your country is enough).

Uniquely, some of their other support options also include assistance with private loans, though that doesn’t include forgiveness. And military service qualifies as public service, so you can access the options discussed in the section above too.

3. Circumstantial cancellation or discharge

Finally, in some rare circumstances, you can cancel or discharge your student loans entirely.

On the bright side, these methods are usually the fastest. You won’t have to jump through too many hoops or wait decades to qualify.

But unfortunately, that’s usually because you’ve been rendered completely incapable of repaying your loan. They’re the last resort in case of some disaster and not something to hope for.

  • School closure: If your school shuts down unexpectedly for some reason, you may be able to qualify for a loan discharge. To qualify, you need to have been actively enrolled during the shutdown or to have left very recently (120 days) without receiving a degree. Reach out to your loan service to apply, but keep making payments while the request is being processed.
  • Borrower defense to repayment:  If your college defrauds you (which is a big if), then you might be able to qualify for loan forgiveness. Unfortunately, proving fraud isn’t easy, and you’ll generally need to demonstrate that they misled a large group of borrowers, including yourself.
  • Total and permanent disability: If you’ve lost the ability to work because of some mental or physical disability, you might be eligible for loan discharge. You’ll need to prove that you’re genuinely and permanently disabled. If the government later finds out that you’ve recovered, they may reinstate your loans. Visit the online application for more information, unless you’re a veteran, in which case the application and approval are automatic.
  • Death: Last but not least, federal student loans will be canceled if the borrower passes away. Even student loans taken out by a parent to pay for a child’s education will be discharged if the parent dies. To qualify, a surviving friend or family member just needs to submit a death certificate to the loan servicer.

What you need to watch out for with student loan forgiveness

Student loan forgiveness programs are helpful, but the industry isn’t free of danger. There are some issues that you’ll need to be conscious of, or you could land yourself in financial trouble.

Two of the biggest ones are:

  • Taxes: Loan reduction, including forgiveness, is often considered taxable income by either the state or federal government. If you’re in a 25% marginal tax bracket and have $40,000 worth of student loans forgiven in a taxable event, make sure you’re ready for the $10,000 tax bill that you’ll have to pay at the end of the year.
  • Scams: Like many other lending industries, scam artists have done their best to take advantage of the opportunity presented by borrowers who are desperate for a way out of their student loans. Make sure you watch out for red flags like private lenders offering forgiveness or the so-called Obama student loan forgiveness (since neither of those things exists).

What if you don’t qualify for student loan forgiveness?

If you don’t qualify for student loan forgiveness, there are other ways for you to manage your debts. For example, consider taking advantage of one of the following:

  • Student loan consolidation: While this won’t reduce your total loan balance, it can help you simplify your monthly payments and even lower them slightly.
  • Refinancing: If you’re incapable of receiving federal benefits because you hold private loans, refinancing can be a great way to lower your interest rate and save money, (especially once you’ve built up your credit score). 

Keep in mind that if your student loans are causing you difficulty despite having relatively affordable terms, it might be due to some other personal finance problem. If forgiveness isn’t an option or hasn’t helped you, try to tackle your other financial difficulties instead. Reduce your living expenses, increase your income, or work with a debt expert to help you get your finances in order.