As of 2020, millions of Americans owe a combined $1.6 trillion in student loan debt. As a result, it’s currently the second-highest consumer debt category, behind only mortgages. There are, however, a variety of government programs offering relief for people with student loan debt, ranging from income-based repayment plans to debt forgiveness programs. And more help may be on the way: Democratic presidential candidates including Elizabeth Warren and Bernie Sanders have proposed programs that would do away with the country’s mountain of student loan debt. If you have questions about your debt, consider meeting with a financial advisor in your area.
What Student Loan Debt Forgiveness Options Are Available?
As of this writing, only federal loans are eligible for debt forgiveness. That leaves non-federal loans – meaning those that are handled by private lenders – ineligible for these programs. If you hold a private student loan, you’ll need to look into student loan refinancing in the hopes of obtaining a lower interest rate. You might also consider working with a financial advisor to figure out your best options for navigating this debt.
If you have federal loans, it might be worth consolidating them through the U.S. Department of Education prior to applying for debt forgiveness programs. You should also be aware that there can be a tax obligation tied to loan forgiveness. For example, debt wiped out through some plans is taxed as income, so you might end up with an unexpectedly high tax bill.
The Public Service Loan Forgiveness Program
The Public Service Loan Forgiveness Program is a tax-free initiative that began in Oct. 2007. You’re eligible if you meet the following requirements:
- Employed by a federal, state, local or tribal government entity or a 501(c)(3) not-for-profit organization
- Work at least 30 hours a week (or meet your job’s full-time requirements, if different)
- You have non-defaulted Direct Loans that you repay on an income-driven repayment plan
- You have made 120 qualifying monthly payments, which are any payments you make:
- after Oct. 1, 2007
- in the total amount indicated on your bill
- no more than 15 days after your due date
- while a full-time employee at a qualifying employer
- under a qualifying repayment plan
Over the last few years, this program has gained a reputation for being extremely difficult to get approved for. In fact, a report from the New York Times states that the rejection rate for the Public Service Loan Forgiveness Program stands at 99%. Furthermore, President Trump released a budget in February 2020 indicating that his administration plans on doing away with the program altogether.
Income-Driven Repayment Plans
The federal government offers four different income-driven repayment plans. Through these, you’ll receive access to affordable payments that are based on your level of discretionary income, among other factors. Depending on the plan, once you’ve made payments for either 20 or 25 years, the rest of your debt will be forgiven.
- Income-Based Repayment Plan (IBR Plan): If your first loans were originated on or after July 1, 2014, you’ll pay up to 10% of your discretionary income and receive forgiveness after 20 years. Anyone with first loans originated before July 1, 2014 pay up to 15% of their discretionary income and receive forgiveness after 25 years.
- Pay as You Earn Repayment Plan (PAYE Plan): All eligible borrowers pay up to 10% of their discretionary income, with loan forgiveness coming after 20 years for all participants.
- Revised Pay as You Earn Repayment Plan (REPAYE Plan): All borrowers pay up to 10% of their discretionary income. Undergraduate loans are forgiven after 20 years, while graduate loans receive forgiveness after 25.
- Income-Contingent Repayment Plan (ICR Plan): Borrowers pay the lesser of 20% of discretionary income or what they would pay in income-adjusted fixed payments over a 12-year plan. Forgiveness comes after 25 years.
Both the REPAYE and ICR plans do not have an income requirement. To qualify for either the PAYE plan or the IBR plan, however, your monthly student loan payments must be less than what they would be under the 10-year Standard Repayment Plan.
Military Loan Forgiveness Programs
- Army Loan Repayment Program (LRP) for Active Duty Soldiers: To be eligible, you must be an active duty soldier and enlist for at least three years, have a high school diploma, score at least 50 on the Armed Services Vocational Aptitude Battery (ASVAB) and more. If approved, as much as one-third of your principal balance will be paid for each year up to three, with a total cap of $65,000, minus taxes.
- Army LRP for Active Duty Army Reserve Soldiers: The LRP is available to anyone in the Army Reserve that enlists for at least six years, has a high school diploma, scores no less than a 50 on the ASVAB and has loans that were made, insured or guaranteed before they went on active duty. The Army will then pay for 15% of your outstanding principal balance, up to $20,000.
- Army LRP for Health Professionals: Doctors, dentists, nurses, healthcare professionals and veterinarians on active duty in the Army qualify for the LRP. You will receive up to $40,000 a year for loan repayment for three years (capped at $120,000).
- Army National Guard Student Loan Repayment Program (SLRP): To qualify, you must enlist for at least a six-year service term and score at least a 50 on the Armed Forces Qualifying Test (AFQT). Prior service soldiers still need to sign up for six years, but the minimum AFQT score is 31. The maximum benefit is $50,000.
- Navy Student Loan Repayment Program (LRP): The Navy’s LRP requires that active duty sailors sign up for at least a three-year service term. Repayment assistance is given for up to three years with a $65,000 cap, minus taxes.
- Air Force Judge Advocate General’s (JAG) Corps Loan Repayment Program (LRP): This LRP offers up to $65,000 in student loan repayments over three years. This becomes available after the JAG officer completes their first year of service.
Perkins Loan Cancellations
If you took out a Perkins Loan before the program expired on Sept. 30, 2017, you could have up to 100% of your loan cancelled. This is applied for annually and awarded in increments over four or five years. Each year you qualify, any interest you accrued that year will also be forgiven. You must apply for your Perkins Loan cancellation through your school or your school’s loan servicer.
You must hold one of the following jobs to get approval:
- Teachers serving low-income families
- Special education teachers working with infants, toddlers, children and youth with disabilities
- Mathematics, science, foreign languages and bilingual education teachers
- Also applies to other teachers that work in a state that’s determined to have a shortage of their type
- Law enforcement/corrections officers
- Nurses/medical technicians
- Librarians with a master’s from a Title I school or who work for a public library serving Title I schools
- Federal public or community defender attorneys
- Child or family services nonprofit agency employees
- Head Start educational program employees
- State-regulated child care program employees
- Providers of early intervention services for people with disabilities
- Faculty members at tribal universities or colleges
- Full-time speech pathologists with a master’s degree working in a Title I-eligible elementary/secondary school
So long as you provide supporting documentation, you might be eligible for a full or partial cancellation under these circumstances:
- The borrower died or has a permanent disability
- Bankruptcy caused by undue hardship
- School closed before your program’s completion
- Served in the armed forces in a hostile fire or imminent danger area
Student Loan Discharge Options
- Closed school discharge: For this, your loans must have been made on or after Jan. 1, 1986. The student must have been unable to complete their education because the school where they were enrolled closed, or the student withdrew less than 120 days before the school closed. Borrowers who receive this discharge are eligible for reimbursement of any money they spent on the discharged loans.
- Death discharge: Loans are eligible for complete discharge if the borrower has passed away. To obtain this, you must provide an original or certified copy of the death certificate.
- Total and permanent disability discharge: If a borrower becomes totally and permanently disabled, federal student loans and TEACH Grant service obligations can be discharged.
- Bankruptcy discharge: Very few people are successfully able to discharge their student loans in bankruptcy. However, if you can prove that they are causing “undue hardship” for you or your dependents, it’s possible you’ll be eligible. Bankruptcy law is not clear on the definition of “undue hardship,” but the most common test is known as the “Brunner test.” The three factors a court will look at under this test include your standard of living if you’re required to pay off your loans, will this situation carry on for a major portion of your repayment period and have you made a good faith effort to pay back your loans thus far.
- False Certification Discharges
- Disqualifying status: The school must have certified the eligibility of a student who would not be able to meet employment requirements in the occupation they were being trained for.
- Forgery: If the school forged your name and signature on loan paperwork or other financial documents, you can qualify for this. Students cannot have benefited from the proceeds of the loan to retain this eligibility.
- Identity theft: Individuals who have their identity stolen and a loan taken out in their name can receive a discharge.
- Unpaid refund discharge: To attain this, you must have been entitled to a refund of a federal student loan. In other words, you either withdrew from the school, did not attend the school or were terminated by the school, and the school did not return loan funds. This will include the amount of the refund that should have been paid by the school, as well as any charges associated with the unpaid refund.
- Discharge for spouses and parents of 9/11 victims and public servants: If you are a spouse or parent of someone who died or became totally and permanently disabled due to injuries suffered in the Sept. 11, 2001 terrorist attacks, you may be eligible for a discharge. This applies to 100% of all federal student loans borrowed or endorsed on behalf of the victim of the attacks. Unfortunately, any amount previously paid is not eligible for a refund.
Loan Forgiveness Through Charities, State Governments and Employers
Some charitable organizations will help you pay off your student loans, including SponsorChange, AmeriCorps, AmeriCorps VISTA, Teach for America, the Peace Corps and the National Health Service Corps. Check out your eligibility and see if volunteering or working for one of these organizations can help you.
On occasion, employers offer assistance with your student loans. Check with your employer or HR department to see if they have a forgiveness or student loan repayment program that you’re eligible for.
Outside of Alabama, Connecticut, Tennessee, Utah and West Virginia, every state in the U.S. has at least one student loan forgiveness or repayment program. Check your state government’s website to find more information on the availability of these plans.
Democratic Candidates’ Plans for Student Loan Debt Forgiveness
Elizabeth Warren’s Plan
Democratic U.S. Senator Elizabeth Warren from Massachusetts, a possible presidential candidate for the 2020 election, has proposed a student loan debt forgiveness plan that would cancel student loan debt for tens of millions of Americans. Warren wants to cancel up to $50,000 in student loan debt for around 42 million Americans. That would wipe out student loan debt entirely for more than 75% of the Americans with that debt.
A Universal Free College program was also rolled out by Warren to go along with her student debt relief proposal. This program would eliminate tuition and fees at all two- and four-year public colleges across the U.S.
Warren plans on paying for her student loan forgiveness and universal free college plans with an Ultra-Millionaire Tax. This proposed tax law would require households with a net worth of at least $50 million to pay a 2% annual tax. Families with a net worth over $1 billion must also pay another 1% tax.
Here is a more detailed overview of Warren’s plan for student loan debt forgiveness:
- $50,000 in student loan debt is cancelled for every person with a household income under $100,000.
- Warren has a specific debt cancellation plan for anyone with a household income between $100,000 and $250,000:
- The aforementioned $50,000 cancellation amount phases out by $1 for every $3 in income above $100,000. For example, Warren’s proposal states that “a person with household income of $130,000 gets $40,000 in cancellation, while a person with household income of $160,000 gets $30,000 in cancellation.”
- Those with a household income above $250,000 would not be eligible for cancellation.
- Private student loan debt would be eligible for cancellation.
- Any student loan debt that’s cancelled would not be taxed as income.
Bernie Sanders’ Plan
Note that other candidates have plans for student loan debt too. Bernie Sanders, the Senator from Vermont, has likewise proposed cancelling student loan debt. His plan goes further than Warren’s in one key respect: He would make debt forgiveness available to all borrowers, regardless of their income. That means that even borrowers making more than $250,000 a year would be eligible.
Mike Bloomberg’s Plan
Mike Bloomberg also has a plan for student loan debt that’s headlined by proposed policies to make tuition at two-year public colleges free and increase the size of the Pell Grant. Low-income students at these schools would also receive financial coverage for books, food, childcare and transportation. Bloomberg also wants to overhaul a number of income-driven debt repayment plans.
Bottom Line
Figuring out all available ways to reduce your student debt can be overwhelming. Your options range from sustainable payment plans to outright forgiveness. And a few Democratic presidential candidates have proposed sweeping plans for forgiving varying levels of student loan debt. While Americans with private loans are largely ineligible for current programs, student loan refinancing is a viable choice. If you qualify, you can get a lower interest rate and save money.
Tips for Your Financial Plan
- The sooner you deal with your student debt, the earlier you can start saving for retirement and investing your assets. a financial advisor can help you navigate your debt and get on track with saving and investing. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Regardless of whether you’re paying off student debt, a mortgage or a credit card, a well-constructed budget can help you keep your finances in order. If you don’t know where to start, try using SmartAsset’s budget calculator.
Photo credit: ©iStock.com/William_Potter, ©iStock.com/laflor, ©iStock.com/Bumblee_Dee, ©iStock.com/beer5020, ©iStock.com/designer491