5 Ways to Get Your Student Loans Forgiven
As if going through college is not hard enough, graduation means there is another burden to be shouldered. This burden is that of repaying your student loans.
With all the celebration that comes with graduation, you would think that life is about to get smoother. That you would look for a job and get one sooner than later.
Earn a good income to sustain yourself and pay your bills, including debts like student loans.
Unfortunately, things don’t always work as hoped for.
You may go out there and find it a real struggle getting a job. What do you do? What happens when the 6-month grace period comes to an end?
Pending bills can be a major issue, especially soon after college. And if you don’t get a job quickly, then stress starts building up.
Like many others, you may have been told that if you studied hard and passed your exams, you would get a good job.
After that, you proceed to buy a home and raise a family.
But if that good job doesn’t come along soon, all these can seem as nothing but wishes.
But hope is not lost. At least not in repaying your loan.
WHY SHOULD YOU SEEK LOAN FORGIVENESS?
Today we’re telling you what you can do to reduce your student loan burden.
Just like any other debt, these loans can weigh you down to the point of unmanageable stress.
At that point, you may struggle to even make a good decision on a daily basis.
There can be many reasons why your loan repayment is taking a toll on you.
But whatever the reason, you need to deal with this debt.
HOW TO GET YOUR STUDENT LOANS FORGIVEN
Contrary to what many think, you don’t have to struggle with your loan if you can’t repay it. This does not mean that you should decide not to pay up what you borrowed.
That would not be wise. It would deny many others an opportunity similar to the one you got.
Imagine what would happen if all borrowers never paid back their loans.
If you borrowed money to help you in your college years, the best thing to do is to pay back. This will help others borrow too.
But in the event that you are unable to repay the loan, then there are ways of dealing with it. These are meant to help those who genuinely want to pay back but can’t.
The reasons might be anything from unemployment to extremely low salaries.
For this reason, various programs have been developed to help reduce your burden. We are going to look at 5 ways in which you could have your student loan forgiven.
In some of these cases, you will have a certain amount forgiven so that your balance is greatly reduced. In other cases, you can get the full balance canceled.
There are various options in the repayment of your student loan. The below video from Federal Student Aid has some helpful information about this.
With that information, let’s get into the loan forgiveness options.
Alternative 1: JOIN THE MILITARY
Ever fancied being part of the marines? Maybe even the Navy Seals?
A career in the military can be adventurous. It is also a sacrificial service as you put your life in the line for your country.
But isn’t this a great way of serving your country?
One things that gets embedded into the lives of service men and women is patriotism.
These people are also always ready to serve.
There are also many benefits of joining the military. And in the context of our discussion on student loans, this is another reason. Your career in the military can both pay for your college as well as repay your college loans.
This happens under the Military College Loan Repayment Program (CLRP). This program has been designed to be an incentive for new recruits.
And it’s an incentive that works very well. It can help you clear up to $65,000 worth of student loan debt.
The different branches of the military have different payment terms and the amounts vary. The payments are made directly to the lender and start after you have completed one year in active duty.
It is important for you to know that not all types of loans can be serviced by the CLRP.
The below loans are the ones eligible for repayment:
- Stafford Student Loan
- Auxiliary Loan Assistance for Students (ALAS)
- Parents Loans for Undergraduate Students (PLUS)
- Consolidated Loan Program
- Federally Insured Student Loans (FISL)
- Supplemental Loans for Students (SLS)
- Perkins Loan
As a hopeful for the loan repayment program, you still must have certain qualifications. Some are general, i.e. they cover all the service branches.
Others however are more specific to particular branches.
For those specific to particular branches of the military, you just have to confirm when seeking recruitment.
Qualifications for CLRP
Here is what you need for eligibility into the CLRP:
- Be a first-time recruit enlisting for at least 3 years of service
- Must have a qualifying specialty
- Must have a score of at least 50 on the Armed Services Vocational Aptitude Battery (ASVAB)
- If enlisting in the Air Force or Navy, you must sign up for a minimum of 4 years. If enlisting in the National Guard, the minimum duration of service is 6 years.
Alternative 2: GET AN INCOME-DRIVEN REPAYMENT PLAN
Another way to get your student loan forgiven is by applying for an Income-Driven Repayment plan. This is the method many Americans are using to repay their college loans.
This plan is helpful because it takes into account your income. It ensures that the repayment of your loan will not be burdensome.
In your repaying, you can at least remain with enough to live on. Considerations of your family size are made to ensure a comfortable repayment.
The amounts to be paid every month are determined by the amount of discretionary income you have. Discretionary income is the amount of money you have that is above the federal poverty level.
The best part of using the IDR plan is that you get to pay the lowest monthly amounts possible. And since your payments are based on your earnings, they can be adjusted if your income levels change.
At the same time, some drawbacks exist. There are two which are the biggest. One is the need to annually re-certify your income status and eligibility.
This process helps determine the amounts to be paid over the next year.
The other issue is that interests are usually accumulating when using this plan.
As much as your monthly payments will be lower, there will be more payments in interests by the time you’re done with the loan.
Types of Plans
The IDR plan is an umbrella term for four different plans. They all are based on your income levels but individually, they have slightly different terms.
The percentages from your discretionary income is different and so is the repayment period.
Here are the different Income-Driven Repayment plans with some details about them.
1. Pay As You Earn (PAYE) Repayment Plan
This plan has payments capped at 10% of your discretionary income. The repayment period is 20 years. This is also the loan forgiveness period. Any loan balance after this period is forgiven.
2. Revised Pay As You Earn (REPAYE) Repayment Plan
This repayment plan also has its payments capped at 10% of your discretionary income. The payment period differs depending on the purpose of the loan.
If the loan was for an undergraduate study, the period is 20 years. If for a graduate or professional study, the repayment period is 25 years.
3. Income-Based Repayment (IBR) Plan
Your repayments in this plan depend on when you took the loan. Loans taken before July 1st 2014 have a payment of 15% maximum of your discretionary income. Your repayment period will be 25 years.
If you took the loan on or after July 1st 2014, the payment is 10% maximum of your discretionary income. The payment period will be 20 years.
4. Income-Contingent Repayment (ICR) Plan
With ICR, your repayment amount is 20% of your discretionary income. The repayment period is 25 years.
Not all loans are eligible for the income-driven repayment plan. In some cases, loans may need to be consolidated in order to be eligible. Here are some of the loans you can repay through the IDR plans:
- Direct Subsidized and Unsubsidized loans
- Direct PLUS loans taken by graduate or professional students
- Federal Perkins Loans (if consolidated into a Direct Consolidation Loan)
- Direct Consolidation Loans which didn’t repay any PLUS loans taken by parents
A more comprehensive list of eligible loans can be found here. The kind of loan you have will determine the kind of plan you apply for.
While some loans are not eligible in some plans, they are in others.
Alternative 3: JOIN THE PUBLIC SERVICE LOAN FORGIVENESS PROGRAM
The Public Service Loan Forgiveness program works a bit differently from the others.
This is especially so considering that your loan balance could be forgiven after making 120 qualifying monthly payments. This means forgiveness after a repayment period of 10 years.
The caveat however is that these repayment amounts have to be made under a qualifying repayment plan. This also has to be done while working full-time for a qualifying employer.
You will notice that there are several terms in this description which need proper defining.
Let’s look at these terms to ensure you understand how exactly the PSLF program works.
- Qualifying employer – a qualifying employer is basically one of three types. It may be a local, state or federal government agency or a not-for-profit organization which is tax-exempt under Section 501(c)(3) of the Internal Revenue Code.
There are other not-for-profit organizations which are not tax-exempt under Section 501(c)(3) of the Internal Revenue Code though still qualify to be qualified employers.
These are those which provide public services like public safety, early childhood education, public library services etc.
Some of the employers who are not qualified employers include labor unions, for-profit organizations and partisan political organizations.
- Qualifying payment – this is the due amount on your bill which is paid within 15 days of the due date. This payment is done while working full-time in a qualifying employment. The payment counts if it was made after October 1st 2007 under a qualifying repayment plan.
Such payments will not count as qualifying payments.
For the payment to count, get the deferment or forbearance waived or let the grace period end.
Note that the 120 qualifying monthly payments do not have to be consecutive. In cases of job loss, any payment done before a period of non-payment will not be lost.
You can continue paying after you get another job or start working for another qualified employer.
- Full-time qualifying employment – this is either the definition of “full-time” as made by your employer or work which is at least 30 hours per week. Whichever of these two is greater, that is the full-time duration needed by PSLF.
You might be working part-time for more than one qualifying employers at the same time.
In this case, you could reach the full-time duration if the combined average time worked in the different employments total 30 hours per week.
Time spent in some activities engaged by some not-for-profit organizations will not count towards full-time work.
Time which is spent on religious instruction, worship services, or any form of proselytizing will not count as full-time work.
- Qualifying repayment plan – this is any of the repayment plans included in the Income-Driven Repayment plan. These have been discussed above.
The only loans eligible for PSLF are direct loans. If you have any other loans such as the Federal Family Education Loan (FFEL) or the Federal Perkins Loan, these are not eligible. Defaulted loans are also not eligible.
To make the FFEL and Perkins loan eligible, you will have to consolidate them into a Direct Consolidation Loan.
Below are the eligible loans for PSLF:
- Direct loans
- Direct consolidation loans
- Direct Stafford loans
- Direct PLUS loans
NOTE: PSLF does not have a maximum amount to be forgiven. As long as you have made the required qualifying payments, you are good to go. These payments are also retroactive. If you have made 120 qualifying payments, then your loan can be forgiven right now.
With PSLF, the forgiven amount is not taxable.
Alternative 4: FILE FOR BANKRUPCY
If your situation is really bad and cannot afford to make any payment, you can file for bankruptcy. This process is not the easiest path to take.
Filing for bankruptcy will lead you to the court where you’ll need to prove your inability to repay your loan.
For the court to discharge your student loan, you’ll have to prove that repaying the loan will cause you an undue hardship.
This means making your life and that of your dependents extremely difficult.
Courts normally use what is referred to as the Brunner test to determine your eligibility for a bankruptcy discharge. Through the test, it has to be proven that:
- Given your current financial situation, repaying the loan would make you and your dependents unable to have a minimal standard of living
- The current hardship situation will continue for a significant part of your loan repayment period
- You have put in the effort to try and repay the loan
Even after filing for bankruptcy, it is not automatic that the court will discharge your loan.
There are at least three possible determinations which the court may make. These are:
- The court may agree with you and fully discharge your loan. This means that you won’t have to make any repayments.
- The court may agree with you but decide that you can still pay some of the amount required. It will then determine the amount.
- Though agreeing with you on the difficulty in repaying the loan, the court might simply reject your request for discharge. In that case, it may require you to pay the loan under more favorable terms. These may include lower interest rates and a longer repayment period.
Alternative 5: PERKINS LOAN FORGIVENESS
If you have a Perkins loan, it can be canceled or discharged. Cancellation happens based on eligible employment or volunteer service. Discharge on the other hand, is only available under certain circumstances.
For cancellations, the eligible employment and volunteer services include those working as:
- Early childhood education provider
- Nurse or medical technician
- Speech pathologist holding a Master’s degree at Title I school
- Volunteers with AmeriCorps VISTA or Peace Corps
Most of the cancellations are 100% after 5 years of full-time working. For the AmeriCorps VISTA or Peace Corps volunteers, they get up to 70% canceled in 4 years.
You can pursue any of these avenues to get your student loan forgiven. If you’re fresh from college, this might be a good time to plan ahead.
When you take one of these paths early enough, you know that not only are you working, but are also actively minimizing your debt burden.
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