Loan forgiveness is when you are no longer required to repay your loan. There are several occasions when your federal student loans can be forgiven, canceled, or discharged, depending on the circumstances.
What Is Loan Forgiveness?
Loan forgiveness only refers to student loan debt, and it is not possible for mortgages, credit card debt, auto, or personal loans. Even though getting your student debt forgiven might seem like a dream come true, there are a few downsides you need to be aware of, and certain qualifications you need to meet.
Student loan debt is highest among young adults, and it can cause a lot of worries about one’s financial future. Many people dream of their student loans disappearing, and there might be a way for that to happen.
The federal government can write off educational debt under certain circumstances. To qualify for loan forgiveness, you have to do some of the following:
- Volunteer work
- Military service
- Teach in low-income communities
- Practice medicine in certain communities
- Meet other criteria specified by a forgiveness program
Is Loan Cancellation Different from Loan Forgiveness?
Although loan discharge, cancellation, and forgiveness all essentially lead to writing off a part or all of your student debt, there are some differences between the terms.
Cancellation or discharge happens with some unexpected circumstances such as:
- Permanent disability of the borrower
- Closing of school during the time of the study
- School’s failure to refund required loans to a lender
- Use of identity theft to secure a loan
- Death of the borrower
These circumstances do not include not being satisfied with a school program, dropping out before graduating, or not being able to find a job after graduation. However, if a school has been using illegal recruiting tactics such as guaranteeing a high-paying job after finishing, there might be some ground for debt relief.
How Can I Qualify for Loan Forgiveness?
Student loan debt has reached $1.5 trillion, which is higher than ever. However, only a tiny portion of loan forgiveness applicants get approved. If you want to qualify for loan forgiveness, none of your loans can be in default, meaning that if you failed to make payments in the previous nine months you may not qualify.
Keep in mind that loan forgiveness only applies to direct federal loans, and you cannot get it for private loans. Some lenders can allow you to make interest-only payments, or make a new repayment plan if you can’t follow your current one. To learn about your options, you must contact the lender who provided you with the loan.
Different Loan Forgiveness Plans
There are four primary types of loan forgiveness programs:
There are several different plans in this category, including income-based, income-contingent repayment, pay as you earn (PAYE), and revised pay as you earn (REPAYE).
These programs are designed for borrowers with relatively large loan amounts compared to their salary. These plans offer lower monthly repayments based on your income, and an ability to write off the remaining balance after 20 to 25 years of payment.
Public Service Loan Forgiveness
After working ten years for the government or a non-profit organization, your remaining student loan balance can be written off. Careers that qualify for this plan include teachers, firefighters, nurses, military personnel, and others.
Teacher Loan Forgiveness
If you have been an elementary or secondary school teacher full time for at least five years, you might be eligible for student loan forgiveness. This program is available for teachers working in low-income neighborhoods, as well as those teaching an understaffed subject such as maths, science, or special education.
Perkins Loan Discharge
If you have a Perkins federal loan, you can get all of your remaining balance discharged after working a public service job for five years. You can qualify for this plan if you are a teacher, police officer, firefighter, nurse, public defender, school librarian, or other.
Disadvantages of Loan Forgiveness
If you are in a public service job, it still means that you must have 120 payments made to qualify for loan forgiveness. And if you choose the income-based payment plan, you’ll need to make payments for 20 to 25 years to become eligible for writing off your remaining debt.
In some instances, your loan balance might even be growing with an income-driven program. That happens when monthly payments aren’t high enough to cover interest charges, and your debt keeps accumulating with time.
You might even have to pay taxes for the amount that is forgiven, which can be quite costly. Because all of these things, there might be better options for handling your student debt than loan forgiveness.
You can consider consolidating your debt with one of CreditNinja’s loans. Start your application today to see if you are eligible to make your monthly payments easier.