During the mid- to late-summer months, attention usually begins focusing on the financial aid process for rising high school seniors and returning college students. They are gathering documentation to complete the FAFSA once October 1 rolls around, and are continuing the search for college scholarships. Although these efforts can result in having part of the college experience paid for by outside sources, the rest of the funding usually comes in the form of private savings or federal and private student loans.
At this time of year, recent college graduates are also realizing that they will soon be faced with the prospect of repaying their student loans. Be aware that you are legally required to repay your federal student loans even if you did not receive a degree or cannot find a job that is related to your field of study. In certain cases, though, it is possible to have some or all of the student loan debt forgiven, cancelled or discharged.
Some programs allow you to stop making payments completely, but most require you to make payments for a certain number of years before the balance of the loan is forgiven. Here are times when it is possible to have federal student loans forgiven:
• Borrower Defense: If you took out student loans to attend a school that misled you, or engaged in fraudulent or illegal activities, you may be eligible for discharge of federal student loans related to education at that institution.
• Public Service Loan Forgiveness (PSLF): The remaining balance on Direct Loans may be forgiven after you have made 120 qualifying monthly payments (does not need to be consecutive) while working full-time for a qualifying employer such as government organizations, not-for-profit organizations, and certain medical providers, or are serving as a full-time Peace Corps or AmeriCorps volunteer. You must complete and submit an Employment Certification form early in your employment, and then again every year to ensure you are making qualifying payments.
• Teacher Loan Forgiveness (TLF): If you teach full-time for five complete and consecutive academic years in a low-income school or educational service agency, and meet other qualifications, you may be eligible for forgiveness of up to $17,500 on your Direct Subsidized and Unsubsidized Loans and your Subsidized and Unsubsidized Federal Stafford Loans.
• Perkins Loan Cancellation (includes Teacher Cancellation): Federal Perkins Loan cancellation is based on eligible employment or eligible volunteer service and the length of time that you were in such a position. In addition to teaching, other employment or volunteer service that qualifies for cancellation may include firefighter, law enforcement, librarian for certain schools, military service, nurse, intervention services or public defender. Check to determine if your vocation applies.
• Total And Permanent Disability (TPD): Some physical disabilities or mental impairments can qualify you for a TPD discharge on your federal student loans and/or TEACH Grant service obligation.
• Closed School: If your school closed while you are enrolled or soon after you left, you may be eligible for discharge of your federal student loans.
• Income-Based Repayment Plans: If you qualify and make consistent payments through one of the federal student loan income-based repayment plans, you may be eligible for loan forgiveness on the remaining portion of your loan after 20-25 years.
In some instances, federal student loans may be discharged in bankruptcy. If you die, your executor can file paperwork to have your loans discharged.
Be aware that these programs may not apply to all types of federal student loans, so there may be some loans which you will still be required to repay. Direct Loan Consolidation may also affect the credit you receive for making qualifying payments. For private student loans, you will have to check with each vendor to determine if there are any forgiveness programs available.
The portion of the loan that is forgiven may be subject to taxes, so you will need to check with your tax preparer for advice. Look out for companies that claim they can eliminate student loan debt as they may be scams; only work directly with your loan servicer or FSA to confirm authenticity.