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The Student Loan Forgiveness Programs | Complete List

money-imageThe student’s loan forgiveness programs have gained major prominence as the total student loan in America recently crossed $1 trillion, overshadowing all other categories of outstanding loans.

The good news is that whether you have a privately funded loan or a federal loan, there is a range of effective student loan forgiveness opportunities available to you that will cater to your needs.

The article provides a comprehensive understanding of the various student loan forgiveness programs that is provided by the federal government and private institutions.

Federal student loan forgiveness programs

The government has taken serious consideration of the student loan crisis and hence offers many financial assistance schemes that aim at providing student debt relief.

So if you have received loan for your college tuition fees from the federal government, then you should consider the following loan forgiveness programs.

  1. William D. Ford Direct Loan program
  2. Public Service Forgiveness Programs
  3. Teacher Loan Forgiveness Programs
  4. Nursing student loan forgiveness programs.
  5. Military loan forgiveness programs

Below is a brief description that will help you decide the best approach.

  1. William D. Ford Direct Loan program

It is popularly known as the Obama Student Loan Forgiveness Program. The program brought in 3 key changes to the existing federal student loans forgiveness rules. 

  1. It allows total student loan forgiveness after making 240 on time monthly payments.
  2. It introduced the Pay As You Earn (PAYE) repayment plan.
  3. Students who have taken loans after 2014 will be eligible to make repayments based on 10% of their income.

The scheme is very advantageous for the borrower as it allows consolidation of all their student loans taken from the federal government. The borrower can choose an affordable repayment plan for the new consolidated loan from the below five options.piggy-bank-

  1. Standard repayment

In this scheme, the borrower has to pay a fixed amount each month for the full term of the loan. The monthly payment amount will be based on the loan amount, lifespan of the loan and the interest rate.

  1. Graduated repayment

In this scheme, the borrower will have to pay a lower monthly amount compared to standard repayment plan but the monthly amount will be increased every two years.

  1. Income contingent Repayment (ICR)

In this scheme the borrower will have to make payments based on their earnings, size of the family, outstanding loan and the interest rate. Under this scheme the borrowers can have payment amount as minimal as $0 per month.

  1. Income based repayment (IBR)

In this scheme the payment is stringently based on the income of the borrower and the size of the family. The outstanding loan amount and interest rate is not taken into consideration for calculating the monthly payment amount.

The borrower is required to pay 15% of their discretionary earnings towards their student loan. Under this scheme the borrowers can have payment amount as minimal as $0 per month.

  1. Pay as you earn (PAYE)

The monthly payment is usually the lowest compared to all other plans under this scheme. The payment amount is established taking into account the income of the borrower. The most attractive feature is the student loan forgiveness after 20 years of on time monthly payment.

The borrower is required to pay 10% of their discretionary earnings towards their student loan instead of 15% under the IBR scheme. Under this scheme the borrowers can have payment amount as minimal as $0 per month.

  1. Public Service Forgiveness Programsmoney-and coins

People who do volunteering work in government-aided community service organizations like the Peace Corps, AmeriCorps or Vista are eligible for enrolling in the Public Service Loan Forgiveness Programs (PSLF). It is also open to nonprofit workers, teachers, nurses, military personnel and government employees.

The scheme was designed to help people who have high debt to income ratios. At present there is no limit fixed on the amount that can be forgiven. Hence your complete student loan is eligible for forgiveness.

It is advisable to perform student loan consolidation with federal government while pursuing public service loan forgiveness.

To become eligible for the program one has to meet the below criteria

  • The person should have worked full time at any one of the qualifying companies. It is not necessary to have worked for 10 years in the same organization.
  • The person has to make 120 on time payments for their direct loans.
  • The payment made should be under one of the eligible plans like Standard Repayment, Pay As You Earn Repayment (PAYE), Income-Based Repayment (IBR), Income-Contingent (ICR) and Revised Pay As You Earn (REPAYE)
  1. Teacher Loan Forgiveness Programs

The federal government has introduced many schemes that reduce the cost for securing a degree in teaching. Below is a brief description of the three most popular loan forgiveness programs for teachers.

  1. TEACH grants

Teachers who work niche areas and in low income schools are eligible to for this grant. TEACH grant is difficult to secure but provides debt relief of $4000 every year while the borrower is working to get their undergraduate degree, master’s degree related to the subject or teaching credentials.beggar-hat

  1. Perkins loan forgiveness

This scheme provides loan forgiveness up to 100% on any student loan taken from the federal government, for becoming a teacher. It also offers loan deferment benefits. This grant is available to teachers who

  1. work in low income schools
  2. cater to children with special needs
  3. have expertise in subjects like science, mathematics, foreign language or any other discipline that does not have many qualified teachers.
  1. Stafford loan forgiveness

This scheme provides debt relief of up to $17,500. Only teachers working in any one of the qualifying low-income schools for 5 complete and consecutive terms are eligible.

This type of loan forgiveness benefit is very valuable and is difficult to secure but the borrower can save a considerable amount under this scheme.

  1. Nursing student loan forgiveness programs.

If you are a nurse or studying to be one then you can avail the forgiveness program for nurses to lower your debt. Below are 2 programs offered by the federal government.

  1. The nurse corps repayment program (NHSC)

After serving two years at any one of the eligible healthcare organization, 60% of your nursing loan can be pay off by the federal government. If you choose to continue for another year, an additional 25% of the remaining loan amount will be paid by the government.

  1. The Perkins loan cancellation program for nurses and licensed medical technicians

Under this scheme the eligible nurses and LMT can get relief from the debt related to Perkins loans after completing 5 years of service.

Apart from the above mentioned programs, nurses and LMT are also eligible to seek debt relief download PDF under the public service loan forgiveness program by making on time monthly payments without any default for ten consecutive years. debt-dollar sign

  1. Military loan forgiveness programs

This program was created to act as an incentive for highly qualified people to join the defense forces of the county. Most of the schemes are available for people who are joining the forces for the first time or for people who are joining the Reserves.

This is a very effective tool as it offers loan forgiveness of up to $65000 of total loan amount. Below is a brief overview of the 2 schemes currently available under the program.

  1. Military College Loan Repayment Programs

This scheme is open to almost anyone joining any one of the branches of the defense force. Each branch has a separate limit for loan forgiveness. The army and the navy provide the highest loan forgiveness amount of up to $65000 of total debt while the air force offers $10000 of total debt as loan forgiveness.

  1. National Defense Student Loan Discharges

It provides student loan forgiveness to any person who has finished one year of service in the defense force including a minimum of one year of service in hostile area.

Private student loan forgiveness programs

As per recent reports private student loan constitutes about 15% of the total outstanding student loan debt. Students who attend private universities and require large sum of money to fund their education usually opt for private student loan.

Though the loan amount is higher compared to the federal student loan, the interest rate is also higher in this case. People should carefully weigh the pros and cons before opting for it as the interest on the loan amount accumulates at a faster rate.

Following are a few private student loan forgiveness opportunities that you can consider to reduce your monthly payments.

  1. Loan consolidation programs
  2. Loan Modification Programs
  3. Loan Discharge via Bankruptcy

Below is a brief description that will help you decide the best approach.

  1. Loan consolidation programs

money-billThere are a few companies that offer loan consolidation private for people who are finding it difficult to make their monthly payments. It offers 2 specific advantages as listed below:

  • It allows combining a number of smaller loans from different money lenders into a single loan from a single money lender. This reduces your stress as you can now focus on a single monthly payment, single account to manage and single interest rate.
  • The monthly payment amount is reduced as the result of a better interest rate provided on the consolidate loan and longer repayment term of the loan.

There are different types of consolidation programs offered. Hence a careful review of the terms and conditions of the program including the below 2 points, is required before finalizing your option.

  • It does not allow you to combine your federal loan with private loans.
  • Usually the borrower ends up paying more because of the amount accumulated due interest rate and other fees.
  1. Loan Modification Programs

If you have received a bad interest rate or a short repayment term or any other issues that is making it difficult for you to make your monthly payments, the loan modification program can come to your rescue.

For this to work you have to convince your lender to modify the terms of your loan. This is a difficult challenge as from a legal point of view it is not mandatory for them to oblige.

But if you are able to secure their consent loan modification programs offer the following three advantages.

  • It offers a lower interest rate that will save you money.
  • There is a chance that the banks can write off your debts under their loan forgiveness programs.
  • It provides a longer repayment term that will reduce your monthly payments.

The major constraint of loan modification programs is that it caters to a single loan. This means that if you have multiple loans then you have to seek modification on each to get debt relief.

  1. Loan Discharge via Bankruptcymaster card debt

If none of the student loan consolidation and refinancing options has worked for you, then declaring bankruptcy may be your last option. It is important to note that getting your loan discharged through bankruptcy is a long, time consuming and expensive process.

In order to secure this you have to prove in a court of law that the loan is causing undue hardship which is making it extremely difficult to provide for basic necessities like shelter, food and clothing for you and your dependents.

You will also have to prove that the hardship will continue for the remaining tenure of the loan. But the most important factor is that you have made efforts to repay the loan. This usually means that you have made repayments for at least five years.

Below are 3 student loans for which it is relatively easier to secure loan discharge through bankruptcy.

  • Private student loan that is taken for attending institutions which is not listed in the eligible list of the department of education.
  • Private loan that is taken from leading banks or other reputed financial institutions.
  • Private loan that is used for funding courses which are not part of the traditional 4 year courses, such as technical training, cooking schools, mechanic schools etc.

It is advisable to proceed with caution and keep this as your absolute last resort as it will hurt your credit scores and will make it almost impossible to secure any other loans in future.

Conclusion

Student loan refinancing is the most commonly used approach in case of both federal and private student loan. A good credit score, secure and stable job and a decent debt to income ratio is required to become eligible for such schemes.

The lenders not only offer an attractive interest rate but some even provide additional benefits like unemployment protection. This is very useful as it will temporarily put your monthly payments on hold till you find another job.

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