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.
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.
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.
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.
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