Student loan forgiveness has been a topic of discussion for years, but with the rising cost of higher education, it has become even more important. According to the Federal Reserve, student loan debt in the United States has reached $1.73 trillion, affecting millions of Americans. In response, the government has implemented several programs that aim to provide relief to borrowers. In this article, we will discuss loan forgiveness for students and what you need to know.
What is student loan forgiveness?
Loan forgiveness is a program that allows borrowers to have a portion or all of their student loan debt forgiven or discharged. The forgiven amount can vary depending on the program and the borrower’s circumstances. These programs can be federal or state-based and have specific eligibility requirements.
Types of Student Loan Forgiveness Programs
There are several types of student loan forgiveness programs. Some of the most common include:
- Public Service Loan Forgiveness (PSLF)
The PSLF program is a federal program that forgives the remaining balance on eligible Direct Loans after 120 qualifying monthly payments have been made while working full-time for a qualifying employer. The qualifying employers include government organizations, non-profit organizations, and other public service organizations.
Related: Understanding the Different Types of Student Loans Available
- Teacher Loan Forgiveness
The Teacher Loan Forgiveness program is a federal program that forgives up to $17,500 in Direct Subsidized and Unsubsidized Loans and Subsidized and Unsubsidized Federal Stafford Loans for teachers who work full-time for five complete and consecutive academic years in certain low-income schools and educational service agencies.
- Income-Driven Repayment Plans
Income-driven repayment plans are federal repayment plans that base the borrower’s monthly payment on their income, family size, and loan balance. After making payments for 20 to 25 years, the remaining balance is forgiven.
- State-Based Forgiveness Programs
Many states offer loan forgiveness programs for borrowers who meet certain eligibility requirements. These programs can be targeted toward specific professions such as healthcare, law, and education.
Eligibility requirements for student loan forgiveness programs vary depending on the program. Here are some common eligibility requirements:
- Be enrolled in an eligible program
- Have a certain amount of student loan debt
- Work full-time for a qualifying employer
- Make a certain number of qualifying payments
- Be enrolled in a qualifying repayment plan
- Meet income requirements
- Meet residency requirements
Related: The Impact of Student Loans on Your Credit Score
How to Apply for Student Loan Forgiveness
To apply for student loan forgiveness, borrowers must submit an application to their loan servicer or to the program administrator. The application process can vary depending on the program, so it is important to read the instructions carefully and provide all required documentation.
Impact on Credit Score
Loan forgiveness for students can have an impact on a borrower’s credit score. If the borrower’s student loans are forgiven, it will show up on their credit report. However, the impact on the credit score can vary depending on the program and the borrower’s circumstances.
Forgiveness of student loans can also have tax implications. The forgiven amount may be considered taxable income, which means the borrower may have to pay income taxes on the amount forgiven. However, some programs, such as PSLF, do not have tax implications.
Related: How to Avoid Defaulting on Your Student Loans
Loan forgiveness programs can provide relief to borrowers who are struggling with student loan debt. However, it is important to understand the eligibility requirements, application process, and potential impact on credit scores and taxes. If you are struggling with student loan debt, consider exploring your options for student loan forgiveness.