Nearly seven in 10 graduating seniors left college with student loan debt in 2014, with an average debt-load of $28,950 per borrower.
Some student borrowers find themselves in difficult straits after graduation. About 20% of borrowers owe more than $50,000; 5.6% owe six figures. Plus, any amount of debt can be too much if you can’t find a job after graduation, or a job that pays enough to support you while paying back your loans.
For these and other reasons—a layoff, an unexpected move, a family emergency—you might find yourself unable to pay back your student loans. Before you ignore the situation and go into default, consider these methods of securing forgiveness for your federal student loans:
1. Income-Driven Repayment Plan
OK, this first option isn’t technically student-loan forgiveness, but if you’re looking at possible default because of inability to pay, this is your first stop. Depending on your income, your monthly payment could be as low as $0. This is also the first step if you’re considering Public Service Loan Forgiveness.
There are four repayment plans based on income:
- Revised Pay As You Earn Repayment Plan (REPAYE Plan): This generally caps payments at 10% of your discretionary income (defined as income in excess of the federal poverty line).
- Pay As You Earn Repayment Plan (PAYE Plan): Generally capped at 10% of your discretionary income, and never more than the amount you’d owe under the 10-year Standard Repayment Plan.
- Income-Based Repayment Plan (IBR Plan): Generally capped at 10% of your discretionary income for borrowers after July 1, 2014 (15% for earlier borrowers), and never more than the amount you’d owe under the 10-year Standard Repayment Plan.
- Income-Contingent Repayment Plan (ICR Plan): Payments are capped at 20% of your discretionary income or less.
For details on the different programs and to apply, see the U.S. Department of Education’s Federal Student Aid site.
2. Public-Service Loan Forgiveness
If you’ve been diligently paying your student loans for 10 years (120 payments) and work for a qualifying government or nonprofit employer, you might be entitled to student loan forgiveness via the Public-Service Loan Forgiveness (PSLF) Program.
Only loans secured through the William D. Ford Federal Direct Loan (Direct Loan) Program qualify for the PSLF program. Other loan programs, such as the Perkins Loan, do not. (Although you have other options with Perkins Loans, as we’ll see in a moment.)
Qualifying employers include government organizations, including those at the federal, state, local, and tribal levels, as well as tax-exempt not-for-profit organizations, and other types of nonprofit organizations that provide certain public services. Labor unions and partisan political organizations don’t qualify.
Payments don’t need to be consecutive, but they do need to be for the full amount shown on your bill, whether it’s through a Standard Repayment Plan or an Income-Driven Repayment Plan. It’s also important to note that while some of your payments can be made through a standard plan, the majority must be paid through an income-based plan. Visit studentaid.ed.gov more details and to apply.
3. Perkins Loan Cancellation
Under certain conditions, you can apply to the school that extended your Perkins Loan for loan cancellation. If you were active duty military or a full-time firefighter on or after Aug. 14, 2008, or a police or corrections officer, full-time nurse or medical technician, a staff member of a Head Start program, or various other jobs, you might qualify. See this chart for details.
4. Teacher Loan Forgiveness/Cancellation
If you teach for five consecutive years at a school that serves low-income families, you might be able to secure student loan forgiveness for up to $17,500 on your Direct Subsidized and Unsubsidized Loans and your Subsidized and Unsubsidized Federal Stafford Loans. See this page for details on which types of teachers and schools qualify.
Meanwhile, if you teach full-time at a low-income school, and financed your education with a Federal Perkins Loan, you might be able to have your loans cancelled. See this page for details; contact your college or university to apply.
Note: The methods described here are specific to federal student loan forgiveness. To see your options regarding private student loans, consult our Student Loan Consolidation Guide or contact your lender.