The average student graduating from college these days will have an average of $38,000 in student loan debt. Add everyone’s debt together, past and present, and the United States currently, as a whole, has $1.4 trillion of unpaid student loans.

female student

How long does it take the typical American to pay it all back?

About 21 years. The irony is that a lot of college graduates are eligible to have their student debts forgiven before this amount of time.

What is Student Loan Forgiveness?

Student loan forgiveness is pretty straightforward:

It’s when a person’s college debt is completely forgiven. No matter how much he or she has left to pay, no further payments are expected from the borrower by the loan provider.

The balance is set to zero. As a general rule of thumb, most people who get their loans forgiven have direct federal student loans, but there are some private loans out there where forgiveness is a possibility.

Federal loan repayment plans that offer loan forgiveness:

Currently, the Department of Education offers four payment options on direct federal loans for borrowers with student loan debt. They are:

  • PAYE (Pay As You Earn)
  • REPAYE (Revised Pay As You Earn)
  • Income-Based Repayment Plan
  • Income-Contingent Repayment Plan

There are potential changes coming:

President Trump has talked about getting rid of all student loan programs and just keeping an income-based repayment plan. If this happens, 12.5% of your discretionary income would go towards monthly payments, but all of your loans would be forgiven after only 15 years.

If any of the current repayment plans below appeal to you, act now and you may be grandfathered in if any changes actually occur.

Pay As You Earn Repayment Plan (PAYE)

The precursor to REPAYE, PAYE is a federal student loan repayment program designed to help borrowers having difficulty making normal, monthly payments on their student loans that also offers loan forgiveness if successful payments are made for twenty years.

Borrowers loans must have occurred after October 1, 2007, and must also be able to prove that they are going through ‘partial financial hardship’ — meaning their debt must be high compared to their income. The most appealing thing for a lot of people is that under PAYE, payments are never more than 10% of a person’s discretionary income.

When combined with PSLF (see below) PAYE can really deliver a knockout punch to student loans.

Loans that qualify:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Graduate Plus
  • Consolidation Loans (made after 10/01/2011)

REPAYE

A revised version of PAYE put forth by President Obama, REPAYE (Revised Pay As You Earn) also allows borrowers to cap their monthly payments at ten percent of their discretionary income. But unlike PAYE, it doesn’t matter when the loan was taken out, nor does it matter if the borrower is going through any financial hardship.

To qualify for REPAYE, you need to have one of the following federal loans:

  • Stafford
  • Graduate PLUS
  • Direct Loan
  • Student Loans that have been consolidated into a Direct Loan

After twenty years of successful payments, the remaining balance of your loan is completely forgiven if your loans are from undergraduate work. If the loans are for postgraduate work, then the time is increased to twenty-five years.

students working

To calculate your discretionary income, you need to take your adjusted gross income and subtract 150% of your state’s poverty guideline for you and your family.

The formula looks like this:

REPAYE= 10% (Adjusted Gross Income – 150% x State Poverty Line) / 12

The drawback to this repayment program is that if you start making more money, your monthly payments could very well exceed what you were paying before. However, should that happen, you can also just switch back to a standard payment option.

Another interesting part of REPAYE?

If your income is low enough, you might qualify for payments of $0 a month. Your monthly payment of $0 still qualifies as a payment and still counts as a successful payment towards loan forgiveness. Pay attention to the fine print on interest, though. Often times borrowers in the REPAYE plan will have payments that don’t even cover the accruing interest.

Income Based Repayment Plan

One of the more popular repayment plans offered by the Department of Education, Income Based Repayment (or IBR), caps monthly payments at a certain percentage of your discretionary income and also offers loan forgiveness.

If your loan was before July 1, 2014, it will be forgiven after 25 years and your monthly payments will be no more than 15% of your discretionary income. If your loan came after July 1, 2014, your loan will be forgiven after twenty years and your monthly payments will be capped at 10%.

Like REPAYE, IBR lowers your monthly payments, but it doesn’t stop interest from accruing if the payments are too low. This can be a double-edged sword if your income goes up, because your loan balance may be higher than it was before you went into the program.

The good thing is that you can opt out of the program as you see fit. If it’s not saving you money, you have the choice to leave and go back to a standard repayment plan. If and when you do, though, know that you’ll lose the ability to have your loan forgiven!

Loans that qualify for IBR:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Federal Direct Consolidation Loans
  • FFEL Consolidation Loans

Income Contingent Repayment Plan

The Income Contingent Repayment plan (aka ICR Plan), like the REPAYE plan, doesn’t require the borrower to have a certain level of income. Instead, the ICR plan has all of its borrowers pay 20% of their discretionary income.

For many people, this doesn’t exactly help very much because 20% of their discretionary income is more than what they’re currently paying. Borrowers need to have large amounts of student loan debt for this to be a viable option.

The good thing about ICR?

The program does offer student loan forgiveness, but only after twenty-five years. Just note that only borrowers with federal direct student loans are eligible.

What is PSLF and how can it help you?

PSLF stands for ‘public service loan forgiveness’ and it is exactly what it sounds like. If you work at a job at the local, state, or federal level, your student loans will be forgiven faster than they would be on an income-based repayment plan. You’ll need to make 120 satisfactory payments (or ten years’ worth), so only consider PSLF if the job you work is actually something you’re passionate about.

What kinds of jobs qualify for Public Service Loan Forgiveness?

The Department of Education requires that people looking to qualify for PSLF need to work full-time for at least ten years.

Full-time is defined as:

Working 30 hours or more. If a borrower works at two part-time jobs that both qualify for PSLF, then the combined hours must still be 30 hours.

Types of eligible jobs include:

  • Family service agencies
  • Any position within a government organization (local, state, or federal level)
  • A private organization (or a 501(c)(3)) that provides at least one of the following services:
    • Early Childhood Education
    • Emergency Management
    • Law Enforcement
    • Military Service
    • Public Education
    • Public Health
    • Public Interest Law Services
    • Public Library Services
    • Public Safety
    • Public Service for the Disabled or Elderly
    • School Library

Here’s how to make the most of your loan forgiveness:

Consider switching to an income-based repayment plan. Once you do, you may be able to take advantage of lower payments while awaiting loan forgiveness. Do whatever works best for you, but just make sure you don’t consolidate if you’re halfway towards your PSLF. Otherwise, you’ll lose credit for payments you made and consequently will have to start over.

Military Loan Forgiveness

If you join the military after you attend college, you may be eligible for loan forgiveness because of your service. How much so depends on how long you serve and what rank you reach.

Perkins Loan Cancellation

If you have a public service job, meaning you are a firefighter, teacher, police officer, nurse, or a librarian, you can have all of your Perkins loan forgiven after five years.

It’s different from PSLF in that it focuses solely on Perkins loans, this is a pretty accommodating loan forgiveness program. Even if you work at a public service job for only a year, you still receive some of the benefits for your time there.

Here’s a breakdown of Perkins loan cancellation:

  • First and second year: 15% loan cancellation after each year of service.
  • Years three and four: 20% loan cancellation after each year of service.
  • Year five: 30% loan cancellation after final year of service.

If you’re interested, you need to contact your alma mater’s financial aid office and speak to them about the Perkins Loan Cancellation program. Note: If you’re a teacher, there are some specific criteria that you’ll need to meet; for example, you need to teach in a low-income neighborhood and teach a specific subject, such as math, science, special education, or a foreign language.

Other Options for Student Loan Forgiveness

If none of the above ways work for you, there are other ways to get your student loans forgiven, but they’re not exactly anything you’d like to jump on.

Here’s a list of them going from less favorable to extremely unfavorable:

  1. School closes — you must still be enrolled when your college shuts down, or have withdrawn 120 days before it closed.
  2. You go into bankruptcy — even then, forgiveness is hard to achieve. It’s highly likely your lenders will dispute it with you in court. Many borrowers going for forgiveness via this route lose in court and there are very few precedents of success.
  3. You become extremely ill or disabled — but if you do have your loans forgiven, they’re tax deductible. Many people will instead go into an income-based repayment plan, have monthly payments of $0, and then have them forgiven after 20 or 25 years. You need to be sure you’re never going to be able to work again. With payments of $0, interest will add up and the loan balance will dramatically increase.
  4. You meet an untimely death.

Student Loan Forgiveness Resources

Loan forgiveness is a big topic and there’s always more to learn. If you still have questions, or would like to learn more, the Department of Education and Federal Student Aid websites have a slew of information you can peruse.

Just remember that President Trump has suggested he plans on limiting the student repayment options to just one (an IBR based plan). so if one option appeals to you more so than another, consider enrolling now so that you could potentially be grandfathered in.

While there’s no guarantee, it’s certainly likely. The federal aid websites are great resources to track the latest qualification guidelines for each program and we’ll also publish any changes as they occur.