Insider's Guide to Student Loan Forgiveness
Originally posted in Reddit here by U/SerenityGal - this is some high quality content that I think deserves to be passed around, as the vast majority of folks I know are swimming in some form of student debt. I've merely provided editing for this format - enjoy!
This is meant to be a user-friendly, non-jargon explanation of student loan forgiveness programs - what is possible and what is not; who to trust and who to hang up on.
QUALIFICATIONS: I work for a company under contract with the Department of Education to service Direct Loans (loans owned by the US Department of Education). It's one of the companies listed on this government site:
https://studentaid.ed.gov/sa/repay-loans/understand/servicers
I've worked here for 5.5 years; 3 years in customer service, and 2.5 years in processing repayment plans.
DISCLAIMER: I do not speak for the US Department of Education, nor do I speak for any company servicing student loans; I just wanted to give a Public Service Announcement and share the knowledge I've accumulated by working in the industry for over 5 years now. All of this information is publicly available, but it is generally in a hard-to-understand format.
SOME USEFUL TERMS
Servicer: A servicer is a company that provides customer service, billing, and processing for student loans. They are the company you call when you have a question about your loan, and the company you submit your documents to. They do not own the loan, and do not make student loan regulations. They are the hands-on company that enforces the rules created by the lenders.
Lender: A lender is the entity that provides the funds for a loan. Because they provide the funds and generate the contracts, they make the rules that borrowers and servicers must follow.
**Borrower: **A borrower is the student (or parent, in the case of parent PLUS loans) who takes out the student loan.
Third-Party Company: A third-party company is a company that is not your lender or your servicer. These companies often make cold calls or send unsolicited mail advising people that they can offer forgiveness for student loans. They typically require payments of hundreds of dollars in order to help borrowers complete paperwork (the same paperwork the servicers will help borrowers with for free). The forgiveness programs they offer are already in place based on the type of student loan you have, so they cannot offer any additional forgiveness options. Sometimes these companies also offer student loan management services; for example, they might ask for a monthly fee of $35.00 to remind you once a year to renew your repayment plan, although your servicer will send you reminders anyway for free. If you make enough money so that you are comfortable and don't mind paying hundreds of dollars for a small amount of convenience, these companies are fine to work with, but in the case of people who cannot afford to pay at all, it is certainly an extra expense I would advise against.
Forgiveness: Forgiveness programs are programs that allow a certain portion of your balance, and occasionally the entire balance, to be written off. Sometimes this written-off amount is considered taxable, and sometimes not. Forgiveness programs typically are not an immediate type of program; you must meet certain qualifications for years while remaining in good standing on your loan to qualify for forgiveness. I will detail the forgiveness programs and how to apply below.
Discharge: Discharge programs, unlike forgiveness programs, cause an entire loan balance to be written off immediately, assuming you meet certain criteria. Discharge programs apply when you are considered unable to pay off your loans due to circumstances outside your control.
Subsidies: Subsidized student loans are loans that have their interest paid (subsidized) by the government while the loan is under certain conditions, like when you are attending school full time or when you are on a deferment. Unsubsidized loans do not have these benefits, except in one scenario (see REPAYE in the IDR PLANS section).
Deferments: A deferment is a hold on your loan for a specific period of time. In order to qualify for a deferment, you must meet certain qualifications, and you will have to provide documentation for those qualifications. You will qualify for a deferment if you are unemployed and registered with an unemployment agency (not monster.com, but a state labor department), if you are attending school at least half time, if you are working full time and earning less than the poverty guideline for your household size, if you are receiving public assistance, and various other situations. Deferments are nice because subsidized student loans do not accrue interest while on deferment. Unfortunately, student loans only have a limited amount of deferment time available for each deferment type, typically 3 years.
Forbearance: Like deferments, forbearances are holds placed on student loan accounts. Typically, it is easier to qualify for a forbearance than a deferment, and it is usually easier to apply because less documentation is required. The problem with forbearances is interest continues to build up on the loan each day (student loans are simple interest loans that accrue interest daily), and it is not covered by the government. Like deferments, there is a limited amount of forbearance time available for student loans.
TYPES OF STUDENT LOANS
DIRECT LOANS: Most of you will have Direct Loans, or loans owned by the US Department of Education. All regular student loans taken out after June 30, 2010 are Direct loans. Direct loans have some benefits that other loan types do not have.
FEDERAL FAMILY EDUCATION LOAN PROGRAM (FFELP) LOANS: Some of you will have FFELP loans, which are owned by financing companies and banks, but which are federally backed in case of default. Some FFELP loans have been transferred and are now serviced by the same companies that service Direct loans. There are still federal benefits for these loans, but there are fewer programs available for FFELP loans than for Direct loans.
PRIVATE LOANS: A few of you have private loans, which are not federally backed and do not qualify for any of the programs that will be listed here. Any loan benefits will be dependent on your lender, just like if you took out an unsecured installment loan at a bank.
PARENT PLUS LOANS: Parent PLUS loans are loans taken out by a parent or guardian for a student (not for themselves). These loans can be under the Direct loan program or the FFEL program. These loans are a bit different because they do not qualify for many of the programs available for other types of student loans. I will address parent PLUS loans separately in the forgiveness section.
SPECIFIC LOAN CATEGORIES:
STAFFORD LOANS are student loans taken out by a student for themselves. Stafford loans can be Direct or FFELP loans. They are usually taken out for undergraduate programs, but occasionally, if a student has not reached their Stafford loan limit (set by the US Department of Education), they can take out unsubsidized Stafford loans as a graduate student.
GRADUATE PLUS LOANS are loans taken out by graduate students who have reached their Stafford loan limit. Graduate PLUS loans are always unsubsidized and have higher interest rates than Stafford loans do, but unlike parent PLUS loans, graduate PLUS loans are eligible for any forgiveness plans available under their loan program, Direct or FFELP.
Now that we've got all of that terminology out of the way, let's get to the good stuff -
FORGIVENESS PROGRAMS
DISCHARGE OPTIONS:
Total and Permanent Disability (TPD) Discharge (AVAILABLE FOR BOTH DIRECT AND FFELP LOANS): If you are totally and permanently disabled (i.e. if your doctor certifies that you have a medical condition that will prevent you from working for the next 5 years) you can have your loans discharged. Be aware that it can take several months for this process to be complete, so you may want to ask your loan servicer for a forbearance or deferment in the meantime. How to apply: It doesn't matter which servicer is in charge of your student loans, you will always apply for TPD through a company called NELNET. To apply for TPD, contact Nelnet either by visiting their discharge website at www.disabilitydischarge.com or by calling 888-303-7818. If you have taken out a parent PLUS loan or if you are a student whose parent has taken out a PLUS loan for you, the loan can be discharged if either the parent or the student is disabled. Be aware that the discharged amount can be considered taxable income. That means if you make $10K per year and you have a $50K loan discharged, the next year your income on your tax return might be $60K, and you would be required to pay taxes on that entire amount.
Closed School Discharge: We're seeing more of these lately. If you are attending or on an approved leave of absence from a school that closes, you can have your loan discharged. You may decide to transfer your credits to another school instead, in which case you would not qualify. Be aware that you have to actually be attending the school when it closes, or you have to have stopped attending within 120 days of the school closing. If you already graduated or if you stopped attending more than 120 days before the school closed, you will not qualify. HOW TO APPLY: call or email your student loan servicer.
DEATH: This one is sad and seems morbid, but more people than you might expect ask about this. If you have federal student loans, under the Direct or FFEL programs, your student loans will be discharged when you die. It is not possible for your loans to be transferred to anyone else's name, and your estate will not be billed for the balance. Once your servicer receives documentation, usually a death certificate and obituary, the balance is written off.
VARIOUS OTHER DISCHARGE TYPES: The three types above are the most commonly requested discharge types, but student loans can also be discharged for fraud or if the school should not have allowed you to take out student loans because they have no reason to believe a degree would be useful to you (typically occurs when a student does not have a high school diploma or GED). If you think you might be a candidate for discharge, call or email your servicer. They'll be happy to look into it for you.
FORGIVENESS OPTIONS:
PUBLIC SERVICE LOAN FORGIVENESS (PSLF): This is the most talked-about forgiveness plan, and there are a lot of misconceptions about it. The PSLF program allows borrowers who work in public service (defined as working full time for a non-profit (501(c)(3)) company or a government agency) to pay their loans on a qualifying repayment plan (more on this in a minute) for ten years (120 payments). Once the borrower has made 120 qualifying payments, the rest of the balance will be forgiven, and will not be considered taxable. Here are a few important tips about the PSLF program: First, this program is only available for Direct loans. If you have a FFELP loan, your loan is not eligible for the PSLF program. You can consolidate your loan under the Direct Loan program, at which point your new consolidated loan would be eligible, but any payments you make prior to consolidating will not count toward forgiveness. Second, there are two main factors for eligibility for the PSLF program - your employment has to qualify, and while you're working for a qualifying employer, all of the 120 payments have to be made on a qualifying payment plan. This is where many people have trouble. I've spoken to borrowers who have paid for 7 years on a graduated repayment plan while working for a government agency, all the while assuming that they were going to have their loan forgiven. Unfortunately, the graduated plan is not an eligible plan for PSLF. Eligible plans are an IDR plan (more info below) or a Standard, 10-year plan. Do you see the problem with the Standard 10-year plan? If you pay your loans on a 10-year term, your loans will be paid in full by the time you qualify for forgiveness. In order to truly benefit from PSLF, you will need to switch your loans to an IDR plan. A few more tips: payments do not have to be consecutive. If you work for a government agency and take off a couple of years when you have a baby and then start working again, those qualifying payments will still count towards forgiveness, as long as you were paying on a qualifying plan and working for a qualifying employer. Payments are only qualifying payments if they are made no later than 15 days after the due date. If you perpetually pay your loan 30 days late, your payments will not count. If you accidentally pay 20 days one month, it's okay because payments do not have to be consecutive. It will take you an extra month, but you will not lose your previous qualifying payments. Also, loans forgiven under the PSLF program are not considered taxable, unlike loans forgiven under IDR plans (see below). How to apply for PSLF: you are not required to submit an application for PSLF until you have made 120 qualifying payments, but you can if you'd like. Just complete the form https://studentaid.ed.gov/sa/sites/default/files/public-service-employment-certification-form.pdf and submit it to Fedloan Servicing. Even if your loans are not currently serviced by Fedloan Servicing, the loans will be transferred there if your employment qualifies, and Fedloan Servicing will keep track of your forgiveness count.
TEACHER LOAN FORGIVENESS (TLF): If you are a teacher (not a counselor or librarian) and you have taught at a low-income (Title I) school for 5 years, you are eligible to have a certain amount forgiven. The amount is usually $5K, but if you are a special education teacher or if you teach math or science at a secondary school the forgiveness can be $17.5K. This program is available for both Direct and FFELP loans. The biggest thing to be aware of with this program is that only loans taken out after October 1, 1998 will qualify. Congress created the plan at that time, and only authorized it for new loans that were taken out after. This is a good program, but be aware if you are also interested in the PSLF program that you cannot do both at the same time. You can qualify for both forgiveness programs, just for different time periods. For example, if you taught at a Title I school from 2005 - 2010 and had $5K forgiven, any payments you made during 2005 - 2010 would not be considered qualifying payments towards the PSLF program, but payments made after could be qualifying payments, you would just have to pay for another 10 years, at which point your total balance would be forgiven. How to apply: your servicer will have a TLF application on their website. You will need to complete part of the application yourself, and then an "authorized official" will need to complete and sign the rest of the form.
INCOME-DRIVEN REPAYMENT (IDR) PLAN FORGIVENESS: IDR plans are plans that base your monthly payment on your income, as well as your household size and your student loan balance. In order to take advantage of the PSLF plan, you need to pay your loans under one of the IDR plans. These plans are a good option even if you don't qualify for the PSLF program, because after paying for 20 or 25 years (depending on which plan you are on; remember that on the PSLF plan your balance will be forgiven after 10 years, regardless of the forgiveness term of the IDR plan you are on ), your remaining loan balance will be forgiven. There are several IDR plans, which I will detail below, but first I will give some general information about these programs. IDR plans are meant to make your payments affordable. They are not intended to pay off your loan at a certain time. If you have the means to pay extra and you do not qualify for PSLF, an IDR plan is probably not for you, because by paying off your loans early you will save a lot of interest. If you cannot afford to pay, then IDR plans are a good option. The plans (except for ICR) offer interest benefits as well as making payments more affordable. Any interest that accrues that is not covered by your monthly payments will be paid by the government on your subsidized loans for the first three years you are on an IDR plan. For example, if your loan accrues $50.00 each month but your IDR payment is only $10.00 each month, the government will pay $40.00 in interest each month. Keep in mind that IDR plans are good for 12 months at a time. This means you will have to reapply every 12 months. The timeframe is based on when you originally apply, not on the tax or calendar year, so if you applied in September 2016, you would need to send in your paperwork to renew your plan in August or September 2017. Another notice to borrowers with FFELP loans: Income-Based Repayment (IBR) is the only IDR plan available to FFELP borrowers. If you consolidate your loans under the Direct loan program, you will be eligible for any of the IDR plans. On to the individual plan descriptions:
INCOME-CONTINGENT REPAYMENT (ICR): ICR is the oldest IDR plan; it was developed in the '90s. ICR payments are calculated differently than other IDR plans, and the payments are typically higher. One exception is for borrowers with very small balances, usually under about $3K or so: ICR uses the lesser of a payment calculated based on your income or based on your loan balance, so if your loan balance is small, you may receive a low payment even if you have a decent salary. I've seen borrowers making upwards of $100k/year qualify for payments lower than $50/month on ICR. Balances are forgiven after paying on ICR for 25 years.
INCOME-BASED REPAYMENT (IBR): IBR is one of the better-known IDR plans. It was created in 2009 and had a lot of publicity at the time. Payments are calculated based on 15% of your discretionary income (defined as any income you receive that is more than 150% of the poverty guidelines for your household size), unless all of your student loans were taken out on or after July 1, 2014, in which case payments are calculated based on 10% of your discretionary income. The remaining balance is forgiven after paying on the IBR plan for 25 years, unless all your loans were taken out on or after July 1, 2014, in which case the remaining balance is forgiven after paying on IBR for 20 years. One important point about IBR: if you are on the IBR plan and you want to change to any other repayment plan (except for a Standard 10-year plan), you will have to make a special payment before you will be able to exit the plan. The payment can be as low as $5.00, but you will need to let your servicer know that you are planning to pay to exit IBR.
PAY AS YOU EARN (PAYE): PAYE was intended to be a plan that improved upon the IBR plan, but unfortunately the eligibility requirements were so stringent that not many people qualified. In order to qualify, you had to have had no student loans prior to October 1, 2007, and you also had to have student loans disbursed after October 1, 2011. While this is more common today, not many people qualified when PAYE was first released. The payment for PAYE is calculated based on 10% of your discretionary income and the balance is forgiven after paying on PAYE for 20 years. REVISED PAY AS YOU EARN (REPAYE): REPAYE is the newest IDR plan, and was released in December 2015. REPAYE is similar to the other IDR plan. Payments are based on 10% of your discretionary income. Forgiveness comes after 20 years if you only have undergraduate loans and 25 years if you took out any loans for graduate school (yes, it's not fair). If you have graduate loans and you qualify for PAYE even with its weird disbursement requirements, you're probably better off sticking with PAYE because of 20 year forgiveness. I'm planning on going to graduate school once I graduate nursing school (no, I'm not planning on working with student loans for the rest of my life), so I'm repaying my loans on PAYE. There are some great benefits to REPAYE though. Like IBR and PAYE, REPAYE has interest benefits, but the interest benefits are the best of all the plans. For the first three years, any interest accruing on subsidized loans that is not satisfied by your payments is paid by the government. Also, after three years, 50% of the interest not satisfied by your payments on your subsidized loans will be paid by the government. 50% of the unsubsidized interest that is not satisfied by your payments is paid by the government the entire time you are on REPAYE. This is the only plan where unsubsidized loans receive interest help. An important point to consider about REPAYE: if you do not renew your REPAYE plan on time, then for the period you were not on REPAYE, your servicer will have to calculate your income and determine what your payment would have been if you had renewed on time. If you would have paid more had you renewed REPAYE, then the amount you would have paid more for the entire period you were not on REPAYE will be divided into payments for the remainder of the REPAYE term and added to your monthly payments. Please renew on time! How to apply for any IDR plan: If you have Direct loans, you can apply for any IDR plan electronically at www.studentloans.gov. Your servicer will also have forms available on their website. An important addendum: IDR forgiveness can be considered taxable income, meaning the amount forgiven will be included in your income and you will have to pay taxes on it the following year. Thanks to u/drvoltaselectricfish for pointing this out.
FOR PARENT PLUS BORROWERS: Parent PLUS loans do not qualify for any IDR plan. If you consolidate your loans, you will be able to pay on the ICR plan. If you don't have any taxable income, then your monthly payment under the ICR plan will be $0.00. Please consider consolidating and paying under ICR if you have parent PLUS loans and you are struggling to make your payments.
HOW DO I KNOW WHO MY SERVICER IS? Go to www.nslds.ed.gov. You'll have to sign in with your FAFSA information, which you can reset if you can't remember it. Once you've reset everything, I recommend setting up mobile alerts if that's something you're comfortable with. Once you're logged in, click on "financial aid review." Then you can see each student loan you have. Just be aware that you might have different servicers for different loans. You can view individual loan information by clicking on the blue numbers on the left. Your loan servicer's information will be here as well.
SHOULD I CONSOLIDATE? HOW DO I CONSOLIDATE? If you have lots of student loans with multiple servicers, consolidation can be a convenient solution. Be aware that consolidation will not lower your interest rate. Your new, fixed, consolidation interest rate will be calculated by taking a weighted average of the interest rates for all of your existing loans, and rounding up to the nearest .125% (thanks to u/mentaldude95 for the correction). To consolidate, visit www.studentloans.gov. CONSOLIDATION IS FREE!! Never pay to consolidate your loans into a new federal consolidation loan!
BORROWER DEFENSE TO REPAYMENT: Thanks to u/ecc10394 for bringing this up - if you are not eligible for loan discharge due to school closure, but you feel you were unfairly charged tuition by a school that didn't hold up their end of the educational bargain, you may qualify for Borrower Defense to Repayment. Quoting directly from www.studentaid.gov:
"Under the law, you may be eligible for borrower defense to repayment forgiveness of the federal student loans that you took out to attend a school if that school misled you, or engaged in other misconduct in violation of certain state laws. Specifically, you may assert borrower defense by demonstrating that the school, through an act or omission, violated state law directly related to your federal student loan or to the educational services for which the loan was provided. You may be eligible for borrower defense regardless of whether your school closed or you are otherwise eligible for loan forgiveness under other laws."
For more in-depth information about this program, you can visit https://borrowerdischarge.ed.gov/FormWizard/BDU/BDULanding.aspx
How to apply for Borrower Defense to Repayment Loan Forgiveness: You can complete the form electronically at the site below.
https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/borrower-defense
Well, I'm sure I've missed a few things, but I'd be happy to answer questions. It's not possible to cover everything, but I wanted to make this guide easy to understand. Most of all, I just want people to be less stressed about student loans and to be more familiar with the options available to them, so that it's more difficult for predatory companies to charge hundreds of dollars to borrowers who already can't make their student loan payments when the same services are being offered for free.
https://studentaid.ed.gov/sa/ also has a lot of good, in-depth information about student loans.
Hopefully there aren't a bunch of typos, and the formatting is tolerable.
Edit: added tax info for PSLF and IDR plans, as well as how to apply for PSLF and information on Borrower Defense to Repayment Loan Forgiveness.