Are you looking for a shortcut to pay off your debt? If yes, this guide is all that you need. We present you with eight different options to get student loan cancelation for your federal and private student loans.
If you feel lost among all these options and do not know which one is the most suitable, you can contact our debt specialists. We provide a free consultation where we can discuss your debt management strategies and choose the best cancellation option to eliminate your debt struggles.
1. Public Service Loan Forgiveness (PSLF)
Public Service Loan Forgiveness is one of the most popular options when it comes to student loan cancelation. PSLF aims to help borrowers serving the people of America to get rid of their debt concerns. The program requires debtors to make 120 qualifying payments before becoming eligible for loan forgiveness. Therefore, it takes a minimum of 10 years to achieve this benefit. Compared to long repayment periods (up to 30 years), ten years of effort can still seem reasonable.
However, in recent years, many applicants failed this program. The rejection rate was around 99%, and one of the main reasons was ineligibility. There exist many requirements for qualification, so you should not ignore any of them. For example, you need to be working for a public – federal, local, state, or tribal organization- or a non-profit establishment. Your work should be full-time, at least 30 hours per week. You can also work part-time, but then you need to find more than one job opportunity.
Only Direct loans qualify for the program. You need to make 120 payments in full amount, on time, and through Income-driven repayment plans.
What are the Pros and Cons of PSLF?
Although this student loan cancelation option is desirable for many, it also brings some drawbacks. On the bright side, the program can cancel the remaining debt balance fully. Besides, the forgiven debt amount is not a taxable income. Additionally, as you repay debt with Income-driven repayment plans, your monthly payments will be affordable. These programs usually require only 10-15% of your discretionary income.
On the dark side, the program has not been highly successful till now. Only 1% of applicants could get student loan cancelation with PSLF. Moreover, it can be exhausting to wait for ten years to achieve any goals. You can still find other options where forgiveness is accessible in a short period.
Lastly, you should always check your payments and ensure the loan servicers apply for payments correctly. Some people only realized that their payments were not counted after ten years when it was the time for application. Therefore, you should regularly submit the PSLF form to request a loan servicer to count your payments.
2. Teacher Loan Forgiveness (TLF)
Do you have a teaching job? Then you can qualify for $5,000 or $17,500 student loan cancelation in only five years. Teacher Loan Forgiveness is a program available to teachers. Some forgiveness programs distribute funds and require applicants to provide service. Unlike these programs, TLF requires applicants to complete a five-year service. This service should be consecutive. It means, if you teach for three years and quit your job, you should start all over again.
Additionally, at least one of your teaching years should be after the 97-98 academic year.
This student loan cancelation program is available both to Direct and FFEL loan borrowers. If you are a highly qualified teacher in fields like science or math, you can get a higher forgiveness amount- $17,500. Besides, working with special education children will make you qualified for this benefit.
If you qualify for Public Service Loan Forgiveness and Teacher Loan Forgiveness, you can apply both. Getting one forgiveness benefit does not make you unqualified for the other. However, you need to dedicate time and effort to each separately. As mentioned, TLF requires a five-year service. Meanwhile, PSLF requires at least ten years’ worth of repayment. If you apply for TLF, any payment during these five years will not count for PSLF.
Is TLF Better Than PSLF?
Compared to PSLF, TLF has some pros and cons. First, Teacher Loan Forgiveness requires less time to achieve student loan cancellation. While PSLF takes at least ten years, this program needs only five years of service. Additionally, FFEL loan borrowers can also apply to this option.
However, this student loan cancelation program only eliminates a limited amount of student debt. You can get a maximum of $17 500 loan forgiveness, while PSLF grants unlimited forgiveness for the remaining balance. Additionally, many different positions in public service qualify for PSLF, while only teachers can apply to TLF.
Yet, keep in mind that you can apply both in different periods to get student loan cancelation if you qualify.
3. Perkins Loan Cancelation
The PSLF program is available for Direct loans, while the TLF program is available for Direct and FFEL loans. However, there exists another type of student debt called Perkins loans. Although the programs mentioned above do not cover these loans, a specific student loan cancelation option is designed for Perkins loan borrowers.
Some people think that Perkins Loan Forgiveness is only available to teachers. Teachers indeed qualify for this program. However, many others, like firefighters, librarians, or volunteers, can also be eligible for cancellation.
The program is one of the most desirable benefits for the borrowers. Similar to Teacher Loan Forgiveness, you can work for five years to get a cancellation. However, instead of waiting for five years, you will receive some discharge every year. For example, you will receive a 15% student loan discharge in the first and second years of your service. Then, in your third and fourth years, this rate will increase to 20%. Lastly, in your fifth year, you will get a 30% debt cancellation.
Compared to PSLF, this program is available to Perkins loans borrowers, and it grants almost full forgiveness in five years. However, unlike TLF, it discharges some portion of debt every year rather than granting a limited forgiveness amount at the end of the five-year service period.
Yet, this program also has drawbacks, mainly because it only covers Perkins loans. In addition, many borrowers do not qualify for the program due to its narrowed range of eligible applicants.
4. Borrowers’ Defense to Repayment
Till now, we have discussed student loan cancelation programs that required service in return. However, there also exists a program that is not service-based. Instead, this option aims to help students whom schools have misled.
During recent years, the number of scandals around for-profit schools increased. Many borrowers claimed that their school officials misguided them. For example, some students were lied to about the quality of education, transferability of credits, job replacement rates after graduation, etc.
Fortunately, Borrowers’ Defense to Repayment is an excellent option to consider in such situations. The program allows borrowers to stop repayment of debt for a school not worthy of student debt. Yet, you can only apply to this student loan cancellation program in case of educational issues. Personal matters, such as physical abuse, cannot be a reason for the cancellation. Instead, you can apply for this program if you were lied to about job replacement rates or the true cost of education.
What are the Eligibility Conditions?
Similar to Public Service Loan Forgiveness, Borrowers’ Defense to Repayment covers Direct loans. Unfortunately, you cannot apply for this student loan cancelation program if you have Perkins, FFEL, or private student loans. However, different from PSLF, there are no extensive requirement lists for loan type, service, etc. Instead, the most important condition is proving that you deserve this debt cancellation opportunity. In other words, you need to prove that the school misled you, and if they did not, you would not have enrolled.
Therefore, you need to put significant effort into collecting different documents as evidence. For example, you can submit email communication where false claims are mentioned. Alternatively, brochures or contracts can be presented as pieces of evidence.
How Likely Are You to Get Borrowers’ Defense to Repayment?
This student loan cancellation program was once popular during the Obama Administration. However, during the Trump Administration, the program became challenging. Reviews of applications were delayed, and many borrowers got rejections. In addition, the benefit calculation method changed.
Borrowers’ Defense to Repayment program can grant full or partial forgiveness. Unfortunately, during the Trump Administration, many applicants only received partial cancellation. Luckily, when Biden was elected, he expressed his favor for this program. In his “Plan for Education beyond High School,” he wants to bring Defense Rule to its glorious days. Even the Education Department recently granted full student loan cancelation to borrowers who received only partial cancellation before.
Therefore, the conditions for this program are highly suitable. However, it is advisable not to lose time and apply for forgiveness if you think your school misled you.
Benefits and Drawbacks
Before we pass to the next student debt cancellation program, let’s discuss the benefits and drawbacks of the Borrowers’ Defense Rule are. On the one hand, this program does not require any service in exchange. You only need to prove a misguidance or fraudulent activity by the school officials.
Besides, the Biden Administration highly supports this program. Hence, it is easier than ever to qualify for student loan cancelation. Lastly, the Borrowers’ Defense to Repayment is not taxable. So, you do not need to pay additional income tax for the forgiveness amount received.
On the other hand, only Direct loan borrowers can apply for this option. Therefore, even if the school misled you, you could not qualify for the Borrowers’ Defense rule if you have other loan types. Moreover, it is not always easy to prove fraudulent activity. If you do not have written proof for your arguments, you will have a hard time getting forgiveness.
5. Cancellation through Repayment Program
We previously discussed that Public Service Loan Forgiveness requires payments to be made under Income-driven repayment plans. These plans are known for their affordability. However, many people face financial challenges and look for ways to reduce monthly payments. In this case, loan servicers recommend enrolling in Income-driven plans.
These plans determine monthly payments based on family size and earning level. They usually require only 5-10% of discretionary income, which is left after deducting taxes and other essential spendings.
Besides affordability, these plans can grant you forgiveness. Once you complete the repayment period, you get student loan cancelation for the remaining debt amount. Repayment usually lasts 20-25 years.
Sure, receiving cancellations after such an extended period might not be highly desirable. However, it can be an option if you do not qualify for other programs and have financial struggles.
Income-Driven Repayment Plans
If you want to enroll in these repayment options for student loan cancelation, you can choose among different plans. Income-driven repayment has several types, such as Pay as You Earn, Revised Pay as You Earn, etc. Each plan has its payback period and monthly payment amount. Therefore, you can check each program and choose the one that suits your needs the best.
6. Closed School Discharge Program
Besides forgiveness and repayment plans, there exist discharge options. These programs are also similar to forgiveness in terms of student loan cancelation. However, they usually do not require any service in return. Instead, discharge happens only if specific conditions exist.
One of these conditions is a closed school. You can get automatic student loan cancelation if your school closes. Usually, it takes three years to get an automatic discharge. However, if you do not want to wait, you can submit a request to your loan servicer.
Not everyone whose schools close can get forgiveness. You cannot transfer your credits to a comparable program if you want to get a cancellation.
It is possible to receive 100% loan forgiveness through this program. In addition, your forgiveness will be non-taxable, which is another benefit. However, the drawback is that if you continue your education in a comparable program with the help of credits you earned, you will lose eligibility.
7. Disability Discharge
In addition to Closed School Discharge, borrowers can apply for the Disability Discharge option. This student loan cancelation program is available to FFEL, Direct, and Perkins loan borrowers. However, applicants need to prove their disability with Veteran Affairs, Social Security Administration, or physician documentation.
If you get an SSA document or physician’s certificate, you will be subject to a three-year monitoring period. This period is necessary as if the applicant recovers, he/she will be required to continue repayment.
Other Discharge Options
Closed school and disability are not the only cases for receiving discharge on your student debt. There also exist other reasons. For example, you can apply for bankruptcy discharge. Technically, this option exists, and you can apply it. However, we do not recommend declaring bankruptcy as it will have a huge negative impact on your credit score. Your credit performance will be damaged, and it will stay on records for as long as ten years. It will be harder to get insurance, rent a house, get a job, etc.
Additionally, it is possible to discharge the debt in case of death, unpaid refund, or false certification. You can check these options in our blogs or the official Student Aid website.
8. What about Private Loans?
Till now, we have discussed student loan cancelation options for federal student loans. You might wonder if there is no private student loan forgiveness program.
You will indeed have a hard time finding a forgiveness option if you have private student loans. Private lenders offer these loans, so they are not covered by federal financial aid programs. Yet, specific organizations might offer options for private loan borrowers.
For example, the National Health Service Corps offers a loan repayment program to grant up to $50,000 loan forgiveness. You can receive this option in return for two years of service in qualified healthcare facilities. Only health professionals in primary, dental, behavioral, and mental care can apply to this program.
Which Program to Choose?
If you feel lost among these different student loan cancelation options, you can get a third-party debt expert’s help. Like those in Forget Student Loan, debt specialists have helped thousands of borrowers like you reduce their debt burden. Contact us now for a free consultation.