Student Loan Forgiveness

By Kaitlyn Szabo • August 6, 2020

Qualified borrowers may be eligible for student loan forgiveness, meaning they would no longer be obligated to repay part or all of their remaining federal loan balance. Private student loans are not eligible for forgiveness. Borrowers may qualify for forgiveness through public service or by following an income-driven repayment plan.

Option 1: Public Service Loan Forgiveness (PSLF)

To be eligible for the Public Service Loan Forgiveness program, borrowers must be employed by the government or a not-for-profit organization while they make 120 qualifying monthly payments under a qualifying repayment plan. You will need to apply for and enroll in the correct repayment plan, such as income-based repayment or pay-as-you-earn before you begin the PSLF program. The IRS does not consider the amount forgiven as taxable income. According to the CFPB, suspended payments through the CARES Act during COVID-19 will count as qualifying payments, so long as other requirements are met.

Unfortunately, it takes at least 10 years to accrue enough qualifying payments, and the system is notoriously difficult to navigate. If you think you qualify for public service forgiveness, contact your loan servicer.

• If you think you are eligible but have not made enough payments yet, complete the Employment Certification Form. After doing so, you will receive a letter with the number of qualified payments you have made so far. Experts recommend completing this annually or after every job change to stay on track.
• After completing the Employment Certification Form(s) and making 120 payments, fill out the PSLF application.

Additionally, educators may qualify for forgiveness through the Teacher Loan Forgiveness program. Educators may be eligible for forgiveness up to $17,500 if they teach math, science, or special education full-time for five consecutive years in a low-income school. For other subjects, teachers may qualify for up to $5,000 in forgiveness.

Option 2: Income-Driven Repayment Plan

If you do not qualify for forgiveness due to your job, you may qualify after making enough qualifying payments over several years. Here are some repayment plans that include forgiveness options after 20-25 years.

• Income-based repayment: eligible after 20 years of monthly payments at 15% of discretionary income
• Pay As You Earn / Revised Pay as You Earn: eligible after 20 years of payments at 10% of monthly income
• Income-contingent repayment: eligible after 25 years with monthly payment rate recalculated yearly

Managing Loan Payments

Regardless of if you decide to pursue loan forgiveness or not, it is a good idea to develop a plan for managing your student debt. First, review your loan types, amounts, repayment plan, and monthly payments. Then, choose a debt repayment strategy that fits your budget and your financial goals. 

REMEMBER: Due to the COVID-19 pandemic, federal loans have been automatically placed in administrative forbearance. There are no monthly loan payments due until September 30, 2020. Interest is not accruing during this time. The suspension of payments is for federal loans only, not private loans. Learn more from the CFPB.

Money Management E-Newsletter: June 2020