It is estimated that nearly 25 percent of the American workforce is eligible for some form of student loan debt relief through federal loan forgiveness programs. Many graduates work for state or local government agencies, nonprofit organizations, hospitals, schools, and other companies that meet the definition of an eligible employer. Unfortunately, many borrowers are not aware that there is help available or feel the process is too complicated, The benefits vary, depending on the type of employer and student loan, so it can be a bit confusing or overwhelming to those who are unfamiliar with loan forgiveness programs. Here is a brief overview of some of the programs currently available to borrowers.
1. PUBLIC SERVICE
The Public Service Loan Forgiveness Program (PSLF) is only available to borrowers who have federal Direct Loans, not private student loans. Under this program, those who hold a full-time job in a public service sector and make 120 qualifying payments may be able to have their remaining loan balance forgiven. Only payments made after October 1, 2007 are eligible, as long as borrowers were employed full time by a qualified public service organization. To maximize the benefits available under this plan, borrowers should consider using the Income-Based Repayment (IBR) Plan, Pay As You Earn Repayment Plan, or the Income-Contingent Repayment (ICR) Plan. Should borrowers not meet the 120-payment requirement, they will be responsible for the full loan amount, including any accrued interest. The Office of the U.S. Department of Education provides an Employee Certification Form that allows borrowers to easily track their time to ensure they meet the required number of payments while working for eligible public service employers.
Teachers may be eligible for up to $17,500 in loan forgiveness on their Direct Subsidized Loans, Direct Unsubsidized Loans, Subsidized Federal Stafford Loans, and/or Unsubsidized Federal Stafford Loans. The Teacher Loan Forgiveness Program (TLFP) rewards borrowers who teach for five consecutive academic years at certain elementary and secondary schools, as well as educational service agencies that serve low-income families. Schools must be in a district that qualifies for funds under Title I of the Elementary and Secondary Education Act of 1965, which means more than 30 percent of the students who attend a particular school qualify for services under Title I and the school is listed in the Annual Directory of Designated Low-Income Schools for Teacher Cancellation Benefits. Borrowers who have a Perkins Loan may be able to discharge 100 percent of their debt if they have worked full time at a public (or nonprofit ) elementary or secondary school under the Teacher Cancellation Program (TCP). Unlike TLFP, borrowers under TCP do not need to complete five years of consecutive service. Instead, student loan debt will be cancelled according to the number of years worked. Those completing one or two years will have 15 percent of their loan cancelled per year. During the third and fourth years, borrowers will receive a 20 percent reduction. The remaining 30 percent will be forgiven after completion of the fifth year of teaching.
Students who pursue careers in medicine, such as nursing and veterinary degrees, may be able to have a portion of their student loan debt forgiven. The U.S. Department of Agriculture offers assistance to veterinary graduates who provide their services in designated shortage areas through its Veterinary Medicine Loan Repayment Program (VMLRP). Under this program, eligible students may receive up to $25,000 per year if they agree to a minimum commitment of three years. Professional registered nurses who serve as faculty at an accredited eligible school of nursing or work at a critical shortage facility may participate in the NURSE Corps Loan Repayment Program which will pay up to 60 percent of their outstanding student loan balance after two years of service. In addition, some nurses may also receive an additional 25 percent for qualifying expenses with an additional year of service. Health care professionals who agree to a minimum two-year commitment to serve in an America Indian or Alaskan Native community may receive up to $40,000 in student loan payments through the Indian Health Service (IHS) Loan Repayment Program. In addition, eligible participants may also receive up to $8,000 in tax allocations. Many states also operate their own loan repayment programs that provide assistance to those who work in critical shortage areas or fields.
Students pursuing a legal career may be able to find help in reducing their student loan debt through a variety of loan forgiveness programs. Many colleges provide loan repayment assistance to law school graduates who work in nonprofit, government or other low-paying legal fields. In 23 states, recent graduates may be eligible for loan repayment assistance through programs operated and administered through bar associations, bar foundations, and independent nonprofit organizations for work performed in the public interest sector.
It’s important to understand that in many cases the amount of debt that is forgiven will be considered taxable income, which may result in a hefty tax bill. Before you jump into any program, be sure you understand the conditions that must be met in order to qualify for the relief, and consult with a tax professional to estimate your potential tax liability.