Wouldn’t it be great if all your student loan debt would just -poof- disappear? Unfortunately, there’s no magic wand or spell that can make them go away that easily. And in this day and age, many people have massive amounts of student loan debt with no end in sight. However, there are ways to have your loans forgiven or discharged, which is as close as they’ll get to disappearing. The following types of student loan forgiveness and discharge can help you deal with seemingly unmanageable student loan debt.
Public Service Loan Forgiveness (PSLF)
The Public Service Loan Forgiveness (PSLF) Program will forgive the remaining balance on your Direct Loans under specific circumstances. In order to qualify for PSLF, you need to meet these requirements:
- You must have made 120 qualifying monthly payments under a qualifying payment plan
- You must work full-time for a government agency or non-profit
- And you must be working for the government or non-profit when you request forgiveness
There is also a program called Teacher Loan Forgiveness that is offered to those in the teaching profession. Full-time teachers may qualify for forgiveness on their Direct Loans or Federal Consolidation Loan in 5 years. This forgiveness caps at $17,500.
Income-Based Repayment Plan Forgiveness
Under income-based repayment plans, your student loans will be forgiven after 20-25 years of qualifying payments, depending on which repayment plan you select and when you initially borrowed. However, you may pay more than the original loan under a standard repayment plan. This is due to the increased interest over 20-25 years versus 10 years.
There are many different types of discharge, including:
- Disability: If you are “totally and permanently disabled,” you could be eligible for a discharge of your federal student loans. However, you will have to provide documentation that you meet the requirements.
- False Certification: In certain circumstances, you may be eligible for a discharge of your federal student loans. These circumstances are generally if your eligibility to receive the loan was based on false certification or an unauthorized signature.
- Closed School: You may get a discharge of your federal student loans under two different situations with a closed school. You can get a discharge if your school closes during your enrollment and therefore you’re unable to complete your program. Or you can get a discharge if your school closes within 120 days after you withdraw.
- Death: If you die, then your federal student loans will be discharged after the required proof of death is submitted.
Each of these types of discharge has their own rules and regulations. Some types of discharge require a very high burden of proof and others have extensive delays. For example, a disability discharge has a three-year delay before officially canceling your loan.
Tax Implications of Student Loan Forgiveness
If you do receive forgiveness on your student loans, the IRS will likely consider the forgiven debt as taxable income. This is because you received money that you no longer have to pay back. If your student loans are forgiven, expect a high tax debt.
Forgiveness isn’t just given to anyone. Clearly, there are many qualifications you’d need to meet, not to mention all the hoops you’ll need to jump through.
The laws on student loan forgiveness are also always changing. Even as you read this, there are discussions happening around tightening the criteria of student loan forgiveness for students who attended fraudulent schools, discontinuing PSLF for new borrowers, and the possibility of discharging your loans due to bankruptcy. So ask your servicer or a qualified professional about these options sooner rather than later.
If you do ask for forgiveness, don’t just stop making payments on your loan! If possible, you’ll want to keep on top of your payments to ensure you don’t fall behind, especially if the answer is, “No.” And if that is their answer, you can always contact a student loan professional to discover other solutions.
Disclaimer: The viewpoints and information expressed are that of the author(s) and do not necessarily reflect the opinions, viewpoints and official policies of any financial institution and/or government agency. All situations are unique and additional information can be obtained by contacting your loan servicer or a student loan professional.