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The Ultimate Guide to Student Loan Forgiveness

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Ultimate Guide to Student Loan ForgivenessFederal student loans come with a benefit other types of loans do not–student loan forgiveness. Under specific circumstances, the federal government may forgive your federal student loans meaning you’re no longer obligated to some or all of it.

In this ultimate guide to student loan forgiveness, you’ll learn how to qualify, apply, and get your loans forgiven, discharged or canceled.

Differences Between Forgiveness, Cancellation, and Discharge

Forgiveness, cancellation, and discharge sound very similar but are used in different ways. With forgiveness or cancellation, you’re no longer required to make payments on your loans because of your job. When your loan is discharged, you’re no longer obligated to required to make payments due to other circumstances such as a permanent disability or school closure.

Below are the types of forgiveness, cancellation, and discharge available for the different types of federal student loans.

Types of Forgiveness

Public Service Loan Forgiveness

Public Service Loan Forgiveness is a federal program available to employees of government and certain not-for-profit organizations. PSLF forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer.

Only payments made under the standard repayment plan or an income-driven repayment plan qualify for PSLF.

If you’re eligible, your remaining loan balance could be forgiven tax-free after you make 120 qualifying loan payments.

Federal Family Education Loan (FFEL) Program loans and Perkins Loans may become eligible for Public Service Loan Forgiveness if they are consolidated into the Direct Loan Program.

Teacher Loan Forgiveness

Teacher Loan Forgiveness is available for Direct Loans and FFEL Program loans. If you teach full-time for five complete and consecutive academic years in a low-income elementary school, secondary school, or educational service agency, you may be eligible for forgiveness of up to $17,500 on your Direct Loan or FFEL Program loans.

Types of Discharge

Closed School Discharge

If your school closes while you’re enrolled or soon after you withdraw, you may be eligible for the discharge of your federal student loan. Closed School Discharge is available for Direct Loans, FFEL Program loans, and Perkins Loans.

Perkins Loan Cancellation and Discharge

Federal Perkins Loans have a separate forgiveness program because your school is the lender, not the federal government. To apply, contact the financial aid office at the school that administered your Perkins Loan and request the application forms. You need to be a full-time employee in a qualified career.

You may be eligible to have all or a portion of your Perkins Loan canceled (based on your employment or volunteer service) or discharged (under certain conditions). This includes the Perkins Loan Teacher Cancellation.

Total and Permanent Disability Discharge

If you’re totally and permanently disabled, you may qualify for a discharge of your federal student loans and/or Teacher Education Assistance for College and Higher Education (TEACH) Grant service obligation. This discharge is available for Direct Loans, FFEL Program loans, and Perkins Loans.

Discharge Due to Death

Federal student loans will be discharged due to the death of the borrower or of the student on whose behalf a PLUS loan was taken out. Discharge due to death is available for Direct Loans, FFEL Program loans, and Perkins Loans.

Discharge in Bankruptcy (in rare cases)

In some cases, you can have your federal student loan discharged after declaring bankruptcy. However, discharge in bankruptcy is not an automatic process. Bankruptcy discharge applies to Direct Loans, FFEL Program loans, and Perkins Loans.

Borrower Defense to Repayment

With the borrower defense to repayment, you may be eligible for discharge of your Direct Loans if your school did something or failed to do something related to your loan. The specific requirements to qualify for borrower defense to repayment discharge vary depending on when you received your loan.

Federal Family Education Loan (FFEL) Program loans and Perkins Loans may become eligible for borrower defense discharge if they are consolidated into the Direct Loan Program.

False Certification Discharge

You might be eligible for a discharge of your federal student loan if your school falsely certified your eligibility to receive a loan. False Certification Discharge is available for Direct Loans and FFEL Program loans.

Unpaid Refund Discharge

If you withdrew from school and the school didn’t make a required return of loan funds to the loan servicer, you might be eligible for a discharge of the portion of your federal student loan(s) that the school failed to return. The Unpaid Refund Discharge is a for Direct Loans and FFEL Program loans.

How to get Public Service Loan Forgiveness

Public Service Loan Forgiveness forgives certain federal student loans after 10 years (120 months) of qualifying, on-time payments. You may qualify for other benefits, including loan forgiveness for teachers, cancellation for borrowers with Perkins loans, and benefits offered by your state.

  1. Once you have a qualifying loan, you need to enroll in a qualifying payment plan. You can also track your progress towards PSLF by certifying that you work in public service. Enroll in a qualifying payment plan. Get started at studentloans.gov.
  2. Once you certify, your servicer knows you are interested and can track your progress. The company that services your loan may change. Pay close attention to any information you receive about your student loan, even if it’s from an unfamiliar company.
  3. Enroll and certify each year. This is the best way to keep your payment low and check to make sure you stay on track for loan forgiveness. Submit a new form annually, or whenever you change jobs, to make sure you’re on track for forgiveness.
  4. Ask for help. You can contact a loan forgiveness specialist at FedLoan Servicing at (855) 265-4038.

Have the correct type of loans or consolidate

Only federal Direct Loans qualify for loan forgiveness. You may consolidate most other federal loans into a new Direct Loan in order to qualify. Consolidate as soon as possible because any progress made toward forgiveness starts on the date of consolidation. Private student loans do not qualify.

Work full time for a qualifying employer

PSLF is based on your employer. So it matters where you work, not what you do. You must work for your qualifying employer full time, which amounts to at least 30 hours per week. Any employee may be eligible for loan forgiveness, no matter what job they hold. Qualifying employers include:

  • Government organizations at any level.
  • AmeriCorps or the Peace Corps.
  • 501(c)(3) nonprofits.
  • Nonprofit organizations that don’t have 501(c)(3) status but provide a qualifying public service.

Switch to income-driven repayment

To count toward PSLF, you must be on a plan based on your income let you pay less now and set you up to have more forgiven later. The newest income-driven repayment plan, Revised Pay As You Earn (REPAYE), sets payments at 10 percent of your discretionary income. You’ll save the most money if you make all qualifying payments on an income-driven plan.

Extended repayment plans don’t qualify for loan forgiveness. Avoid non-IDR options that lengthen your repayment term, such as an extended repayment plan. Switch plans now to get credit for your service.

Make payments for 10 years

You must make 120 separate monthly loan payments. However, the 120 payments do not have to be consecutive payments. For example, if you have a period of employment with a non-qualifying employer, you won’t lose credit for prior qualifying payments you made. You can also change jobs, switching between qualifying employers and nonqualifying employers. However, payments only count toward PSLF when you’re working for a qualifying employer.

These payments must be:

  • Full amount due
  • On-time
  • While working full time for a qualifying employer and on a qualifying repayment plan.

Each qualifying payment must be a required payment. Paying extra won’t make you eligible to receive PSLF sooner. Payments also don’t count if they’re made while you’re in school, in deferment or forbearance, during a grace period, or if your loans are delinquent or in default.

Apply for forgiveness

Once you’ve met the requirements and currently working full-time for a qualifying employer, you can submit the Public Service Loan Forgiveness application.

With the application, you’ll need to submit an employment certification form for your current employer and each employer you had while making the 120 payments. If you’ve been completing these forms regularly, you’ll need to submit only one for your current employer.

FedLoan Servicing will notify you when it receives your paperwork.

Contact your loan servicer if you think you qualify. If you have a Perkins Loan, you should contact the school that made the loan or the loan servicer the school has designated.

Do I need to make loan payments during the application review period?

Depending on the type of forgiveness, cancellation, or discharge you’re applying for, you may have to make payments during your application review. Check with your loan servicer to find out whether you must continue making payments during the application review period.

What happens when my application is approved?

If you qualify for forgiveness, cancellation, or discharge of the full amount of your loan, you are no longer obligated to make loan payments. In the event that only a portion of your loan is forgiven, canceled, or discharged, you are responsible for the remaining balance. Additionally, you may qualify for deletion or erasure of delinquency or default from your credit report.

What happens when my application is denied?

If your application was denied, you’ll remain responsible for repaying your loan according to the terms of the promissory note that you signed. Talk to your loan servicer about repayment options if you have a Direct Loan or FFEL Program loan. Check out repayment options.

If you believe that your application was denied in error, contact your loan servicer for more information.

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Jason Vitug

Jason is the founder of phroogal, creator of the award winning project Road to Financial Wellness, and author of the bestseller and New York Times reviewed book, You Only Live Once: The Roadmap to Financial Wellness and a Purposeful Life.

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