If you’re late on your student loan payments or on the brink of falling behind, you’re in good company. Of the $1.279 trillion in U.S. student loan debt in the third quarter of 2016, 11% of these loans were 90 days or more delinquent or in default, says the Quarterly Report of Household Debt and Credit by the Federal Reserve Bank of New York.
While student loans are fairly easy to get, they’re not always easy to pay off. You must repay your student loans, even if you don’t graduate or can’t find a job in your area of study. Getting out of paying your student loans is difficult to do. Even if you file for bankruptcy, student loans don’t usually qualify. For them to be forgiven in a bankruptcy, you must prove undue financial hardship and it often involves going to court.
When Student Loan Forgiveness Is Allowed
In some instances, you can qualify for student loan forgiveness, cancellation or discharge for federal student loans. The following circumstances allow you to get all or part of your student loans forgiven.
Public service loan forgiveness
If you work for the government or a nonprofit organization, you might be able to have your student loan forgiven with the Public Service Loan Forgiveness Program. The remainder of your balance might be forgiven after you’ve made 120 qualifying monthly payments. If that sounds like a lot of payments, it is — 10 years, to be exact, if you pay them each month. So this isn’t a get out of debt quickly option.
How it works
You qualify for public service loan forgiveness if the following criteria apply to you.
1. You work at least 30 hours per week for one of these qualified employers:
- Any government agency
- A tax-exempt, 501(c) (3), not-for-profit organization
- Americorps or the Peace Corps
2. You have a Direct Loan.
Loans from other programs, including private student loans, don’t qualify. You could opt to consolidate other federal loan types under a Direct Consolidation Loan so that all of the funds would be eligible for forgiveness, but realize when you do this that you forfeit credit for any payments you’ve made toward the 120 qualifying payments, For this reason, it’s generally only a good idea to consolidate if you’ve just started paying off your student loans.
To determine what type of federal loans you have, look at a statement. Direct loans will say direct on them. You can also log on to My Federal Student Aid to check out your loan type.
3. You’ve made 120 qualifying monthly payments.
Qualifying payments are those made after Oct. 1, 2007. with a qualifying repayment plan. They must have been for the full amount due and made no later than 15 days after the due date. Payments also must be made while you’re employed full time with a qualifying employer. They don’t have to be consecutive payments.
Teacher student loan forgiveness
The federal government set up the Teacher Loan Forgiveness Programs to encourage people to enter the teaching profession and keep teaching. Under this program, if you teach full time for five complete and consecutive years in certain schools, you may be eligible for forgiveness of up to $17,500 on your student loans.
How it works
You qualify for teacher student loan forgiveness if the following criteria apply to you.
- You have a Direct Subsidized Loan, Direct Unsubsidized Loan, Subsidized Federal Stafford Loan and/or Unsubsidized Federal Stafford Loans. PLUS loans are not eligible for forgiveness.
- You aren’t in default with the loan.
- The loans for which you seek forgiveness must have been made before the end of your five years of qualified teaching.
- Time spent teaching to receive benefits from AmeriCorps doesn’t count toward loan forgiveness.
- You must be employed as a full-time teacher for five consecutive and complete academic years.
- The elementary or secondary school at which you’re employed must be in a qualifying district in which the school population is made up of at least 30% students from low-income life situations. This includes students on Indian reservations in which there are schools operated under the Bureau of Indian Education (BIE).
To determine whether the school at which you work qualifies under the low-income rules, check out the U.S. Department of Education’s online database.
Federal Perkins Loan cancellation
If you have a Federal Perkins Loan and teach at a qualifying school or in certain subjects, you may be able to get the loan cancelled. You must have worked full time for a full academic year or its equivalent in certain public or private elementary or secondary schools, including the following:
- Schools serving students from low-income families
- As a special education teacher, including for children with disabilities
- Teaching in the fields of mathematics, science, foreign languages or bilingual education, or in any other fields in which the state’s education agency has determined there is a shortage of qualified teachers in that particular state.
Total and permanent disability (TPD) discharge
You can be excused from paying a variety of student loan types if you qualify for a discharge because of a permanent disability.
How it works
It’s possible to receive what is known as a Total and Permanent Disability Discharge from Federal Direct and Perkins loans and the Federal Family Education Loan (FFEL) Program loan. To be excused from paying these loans, you must provide proof of your total and permanent disability to the U.S. Department of Education. They will evaluate your submission and determine whether you qualify.
You can show that you are totally and permanently disabled in one of three ways:
- Documentation from the U.S. Department of Veterans Affairs if you are a veteran.
- Proof of receiving Social Security Disability Insurance or Supplemental Security Income benefits.
- Certification from a medical doctor.
Tax consequences of student loan forgiveness
If you do get your student loans forgiven, hold off on celebrating. Any student loans forgiven are treated like taxable income. You’ll be required to pay the federal government tax on the amount of money that was forgiven. Of course, this is preferable to still owing the entire loan, but the amount can be substantial if you owe a lot in student loans.
What about private student loan forgiveness?
With private student loans, forgiveness is generally not possible. Some private student loan lenders offer alternative repayment options, such as interest only or deferred payment, when you prove economic hardship.
If you’re struggling to pay your private student loans, it’s a good idea to talk to your lender and explain your situation. If you have more than one private student loan, you may find that student loan consolidation can help make your payments more manageable. Read this guide for more information on student debt relief programs available.
Student loans are a big financial burden for many. Knowing your options when it comes to paying off your student loans can help. Check out SuperMoney’s Student Loans Reviews page for some options and inspiration.
Julie Bawden-Davis is a widely published journalist specializing in personal finance and small business. She has written 10 books and more than 2,500 articles for a wide variety of national and international publications, including Parade.com, where she has a weekly column. In addition to contributing to SuperMoney, her work has appeared in publications such as American Express OPEN Forum, The Hartford and Forbes.