Student loan forgiveness is a popular personal finance topic these days as the Biden Administration proposes to forgive up to $10,000 in federal student loans.
There are currently several student loan forgiveness programs that cancel any remaining loan balance after 10 to 25 years of qualifying payments for most federal loans. The borrower no longer has to repay their student loans after qualifying for loan forgiveness.
Private student loans do not qualify for federal student loan forgiveness but can be discharged due to a total or permanent disability or death. Only in rare instances do federal or private school loans get forgiven when the borrower declares bankruptcy. If you have private student loans, you may want to consider refinancing your student loans to help ease the financial burden. Head to Credible to get started.
Student loan forgiveness options to consider
Despite not have the same loan forgiveness benefits as federal student loans, private education loans have several options for saving money on student loans. You have several options to consider, depending on your loan type and financial situation. Here's what you need to know about student loan forgiveness — whether you're a private or federal student loan holder.
Private student loan repayment options
Refinancing private student loans is one of the most popular solutions for saving money and getting a flexible loan term. A loan refinance can result in lower payments each month when qualifying for lower rates.
Check your rates using an online student loan refinancing calculator. You can also use Credible to compare student loan refinancing rates from multiple lenders at once.
Current college students and those working for select employers like the military or Peace Corps can request a deferment. Borrowers experiencing economic hardship can request loan forbearance. During these grace periods, monthly payments pause but interest can accrue.
Federal student loan forgiveness programs
Most federal student loans are currently under temporary student loan forbearance with 0% interest through September 30, 2021, but don’t automatically qualify for student loan forgiveness.
During this forbearance period, each deferred monthly payment qualifies for student loan forgiveness. Currently, Direct Loans have the most loan forgiveness benefits. Perkins Loans and Federal Family Education Loans (FFEL) can also qualify.
Borrowers may have to first consider consolidating their non-Direct federal loans into a Direct Consolidation Loan to qualify for more loan forgiveness programs. Consolidating also restarts the payment history, meaning previous payments won’t qualify toward loan forgiveness.
These are the most common student loan forgiveness options:
- Income-driven repayment forgiveness
- Public service loan forgiveness
- Teacher loan forgiveness
- State-sponsored repayment assistance
- Perkins loans
- Closed school discharge
If you have private student loans, however, then this type of relief doesn't apply to you. If you're looking to lower monthly payments and ease the burden of student loan debt, then you may want to consider refinancing your student loans. Lock in some of the lowest interest rates ever via the online marketplace Credible.
1. Income-driven repayment forgiveness
The U.S. Department of Education currently offers four income-based repayment plans. Each plan has different repayment and eligibility terms but caps the monthly payment to a percentage of the borrower’s current income.
Borrowers may need to make payments for up to 25 years before the remaining loan balance is forgiven. Loan servicers can help borrowers choose the best repayment plan.
If waiting decades for loan forgiveness isn’t the best personal finance decision, a refinanced student loan with a shorter repayment term can save money. However, federal student loan refinancing with a private lender forfeits all forgiveness benefits.
2. Public service loan forgiveness (PSLF)
Full-time government and not-for-profit employees can qualify for the Public Service Loan Forgiveness Program (PSLF). The remaining Direct Loans balance is forgiven after 10 years of qualifying payments. PSLF-eligible loans can also enroll in income-based repayment plans to reduce the monthly payment amount.
Visit Credible to get personalized student loan refinancing rates without affecting your credit score to see if refinancing is the better option for you.
3. Teacher loan forgiveness
The Teacher Loan Forgiveness Program currently forgives a loan amount up to $17,500 for Direct Subsidized and Unsubsidized Loans. Borrowers will need to teach full-time for five consecutive academic years in qualifying schools or educational agencies to qualify.
4. State-sponsored repayment assistance programs
Most states offer at least one student loan assistance program. These programs usually repay a partial loan balance in critical need career fields that require high student loan debt. Most state education loan assistance programs currently focus on recruiting health care professionals and attorneys.
5. Perkins loans
Perkins loans, while subsidized by the federal government, are school loans issued directly from the university. New Perkins loan applications ended in 2017. Existing Perkins loans in repayment can qualify for full or partial loan forgiveness for select teaching, volunteer, and government positions.
6. Closed school discharge
Direct and FFEL loans can qualify for a full discharge of the loan balance if a school closes while borrowers are currently enrolled or shortly after withdrawing on an approved absence.
It’s also possible to have the loan balance forgiven if the school closes within 120 days of withdrawing, for loans disbursed before July 1, 2020. Loans disbursed on or after July 1, 2020, have a 180-day withdrawal window to qualify. StudentAid.gov provides more discharge details. Borrowers that are unable to complete their degree program can contact their loan servicer to request a loan discharge.
There are several career and income-based student loan forgiveness options. But it can take several years or decades to qualify and the benefits only apply for federal loans.
Borrowers with private student loans should consider loan refinancing to save money. An online tool like Credible can compare rates from multiple lenders at once.