What Are Student Loan Forgiveness Programs, Anyway

Student loan forgiveness programs were introduced in 2008 by former President Barack Obama.

They aimed to satisfy two objectives: first, ease the burden of student loan debt repayment for struggling borrowers, and second, ensure students felt financially supported in their pursuit of higher education.

These programs are available today and will remain in effect unless President Trump makes significant changes.

Student Loan Forgiveness Programs and Eligibility Requirements

Across the many loan forgiveness program types, there are three distinct buckets of people who can benefit: public servants (namely, government and non-profit workers), teachers, and everyone else.

Most of you will fall in the third bucket.

It is important to understand that true loan forgiveness occurs only for public servants and teachers, while for everyone else, you will be required to pay income taxes on the amount of any forgiven loan balances at the end of the program’s loan term.

Public Service Loan Forgiveness (PSLF) Program

Unless you’re a public servant, e.g., you’re a politician, government employee, or you work for a 501(c)(3) non-profit or other non-profit-type organization, then you’re ineligible for PSLF.

The Employment Certification Form has a list of what kind of work qualifies, as well as this list of public service careers and descriptions.  

Under PSLF, borrowers can have the balances of their U.S. Dept. of Education Direct Loan balances forgiven, but only after they have made 10 years, or 120 qualifying payments on those loans, while also maintaining full-time public service employment.

Direct loans differ from indirect loans, also known as Federal Family Education Loans (FFEL), which were provided by private institutions though still guaranteed by the federal government.

FFELs were phased out in 2010, when the government passed legislation to end the program. After June 30, 2010, borrowers can only obtain Direct Loans.

Teacher Loan Forgiveness (TLF)

If you’re a teacher, then you qualify for true student loan debt forgiveness.

Under this program, you may be eligible for forgiveness of up to $17,500 on certain loans if you:

  1. Teach full-time for five complete and consecutive academic years in certain low-income elementary and secondary schools, or agencies that serve low-income families;
  2. Are not in default of your loan, and,
  3. Meet other qualifying guidelines.

Income-Driven Repayment Programs with Forgiveness Options

PSLF and TLF are based on specific occupations. For everyone else, there are federal income-driven repayment programs for which you might be eligible, and that offer some form of loan forgiveness at the end of the term.

Here’s an overview of the different income-driven repayment plans:

  • Income Contingent Repayment (ICR): Borrower’s payments are based on income, family size, loan balance, and interest rate
  • Income Based Repayment (IBR): Borrower’s payments are based strictly on income and family size. The balance of the loan and interest rate are not used in calculating the monthly payment, and the borrower pays a flat 15% of discretionary income toward student loan debt repayment
  • Pay As You Earn (PAYE): Borrower’s payments are 10% of discretionary income. Note that qualifying for the PAYE repayment plan is more difficult than the others, however, this plan usually offers the lowest monthly payments

These programs offer loan terms of 20 to 25 years depending on the repayment plan and your original loan start date. Any remaining loan balance after the loan term would be forgiven at the end of the term.

But, the forgiven loan balance isn’t free money. And this is the major Catch-22. Read why here.