Student loan forgiveness is a hot topic. Here are six facts to help you make sure you don’t get burned by the hype around loan forgiveness. Know the facts now to avoid taking a loan expecting that it will be forgiven only to find out that you don’t qualify after making ten years of payments.
Not all loans are eligible for loan forgiveness. Only loans made by the federal government through one of these programs are eligible to be considered for federal loan forgiveness:
- Federal Direct Student Loan Program (FDSLP)
- Some loans made under the FDSLP’s predecessor program Federal Family Education Loan Program (FFELP)
- Perkins Loan Program
Loans made by private lenders such as banks, credit unions, states, and credit card companies are not eligible to be forgiven by the federal government. The government does not own the loans, so they can’t wave a magic wand and order them to be forgiven.
There are lots of terms, and they can be confusing. You may have read about student loan forgiveness, student loan cancellation and/or student loan discharge. The terms loan forgiveness and loan cancellation are generally applicable to loans that don’t need to be repaid due to the kind of job you have. For example, if you work for a governmental entity or not-for-profit, or are a nurse, teacher, or veterinarian in an under-served community, you may be eligible for loan forgiveness.
Discharge is generally used for special circumstances such as a borrower’s death or total permanent disability, the sudden closure of the borrower’s school, and in some extreme cases, severe economic hardships as determined by a court.
Loans are not automatically enrolled in loan forgiveness programs. Loan forgiveness programs have specific criteria that must be strictly met. There are many different loan forgiveness programs – identifying which might fit your circumstances should be done as soon as possible so you can meet the requirements right from the start. One of the more popular programs, The Public Service Loan Forgiveness Program (PSLF), for example, requires that borrowers:
- Be employed full-time by a government (federal, state, local, tribal) or a not-for-profit
- Have a Direct Loan. Other federal loans must be consolidated into a Direct Loan to be eligible.
- Use one of the income-driven repayment plans
- Make 120 qualifying payments
This is a summary of the requirements. Each category also has specific criteria and definitions, so it pays to do your homework. Call your student loan servicer for more information about PSLF and the other federal loan forgiveness programs, or use the resources mentioned below.
And, of course, there is paperwork. For PSLF, you have to prove you worked for the right type of employer by annually filing the Employment Certification Form (“ECF”). After ten years of payments, you have to submit The Application for Forgiveness. If you don’t file the ECF annually, at the time you file the Application for Forgiveness, you will be required to go back to each employer to prove your employment history is appropriate for loan forgiveness.
The Department of Education offers this helpful Public Service Loan Forgiveness Help Tool for additional guidance.
To be eligible for loan forgiveness, you have to make 120 payments. You read that right – you have to make payments for ten years before the loan becomes eligible for loan forgiveness.
In addition to the Federal Loan Forgiveness programs highlighted above, there are loan forgiveness programs for members of the military, as well as programs sponsored by states. A useful compilation of these programs can be found at Freestudentloanadvice.org.
There is free help to assist you in sorting this out. The federal government has an easy to use site Studentaid.gov with more information in addition to the PSLF Tool. For additional general information or specific advice about your unique situation, try Freestudentloanadvice.org. As the name implies, there is no cost, and experts in student loans staff it.
Taking time to understand the ins and outs of loan forgiveness before taking out a loan will help make a better loan choice and avoid an unwelcome surprise that you do not qualify for a loan forgiveness program you were counting on.