The burden of student loan debt is real. It’s hard to make progress with your finances, hit savings goals, and plan for the future when so much of your monthly budget needs to go to student loan repayment. What if there was an option to have the remaining balance on your loans forgiven after a certain period of time? Depending on your situation and the type of loans you have, that might be possible for you.
Here’s what you need to know to determine if you can take advantage of student loan forgiveness.
Different Ways to Get Student Loan Forgiveness
If you want to take advantage of student loan forgiveness, you have a few different avenues to explore. Start with the Public Service Loan Forgiveness (PSLF) program offered by the federal government.
When you work in a full-time position at a government organization or a not-for-profit organization that is tax-exempt under Section 501(c)(3), your federal loans could be eligible for forgiveness. You need to make 120 qualified payments and then submit an application receive loan forgiveness.
Certain careers offer debt relief programs, too. If you’re a full time teacher for at least 5 years, you may qualify for Teacher Loan Forgiveness. This applies to Direct Subsidized Loans, Direct Unsubsidized Loans, Subsidized Federal Stafford Loans, and Unsubsidized Federal Stafford Loans. Healthcare professionals
If you’re passionate about volunteering, working with AmeriCorps or joining the Peace Corps can provide options for loan forgiveness. Joining the military also gives you access to additional benefits to help you with your student loans.
Are Changes Coming to the Public Service Loan Forgiveness Program?
The PSLF program hasn’t actually forgiven any student loan debt balances yet. The program started in 2007. 2017 will mark the first wave of eligible participants reaching the minimum 10 year mark of making at least 120 qualifying payments.
And far more workers took advantage of the program than the federal government initially expected. According to Fox Business, 30% of borrowers in the program will have over $100,000 in debt the government will forgive. The Department of Education could now be on the hook to forgive up to $12 billion worth of student loan debt between 2017 and 2027.
As a result, the DOE may change the rules of the program to cap how much borrowers can have forgiven in the future. Now is the time to take advantage of the PSLF program if you’re concerned about a potential cap.
The Downsides of Having Student Loan Debt Forgiven
Before you panic about potential changes to federal programs, know that student loan forgiveness doesn’t come without drawbacks. Here are some of the consequences of pursuing this path to debt freedom.
You still need to make payments on your loans. If you qualify for Public Service Loan Forgiveness, for example, you need to work in a specific field for 10 years and make qualified payments on your loans during that time. Only after you hit that 10 year mark do you get the remaining balance forgiven.
And your financial responsibilities may not stop once you get forgiveness on your loans. You’ll actually owe taxes on the portion of the loan you didn’t have to repay if you get forgiveness through any means other than PSLF and Student Loan Forgiveness for Teachers programs.
The IRS considers the forgiven balance as income, and taxes you on that. Say you had a $25,000 student loan balance forgiven. You’d then owe income taxes on that $25,000 in addition to the money you earned throughout that year.
Consider Other Options for Your Student Loans
If you’re not eligible for forgiveness or feel concerned about the downsides, you still have options. While the balance of your loans may not be completely excused, you can get help to repay what you owe.
There are several repayment programs offered to federal student loan borrowers. These may provide options for forgiveness, too, depending on your situation and how much debt you have. (Most require you to make payments to 20 to 25 years, instead of just 10.) You could also consolidate your loans or refinance them if you can secure better terms and lower interest rates.