Loan forgiveness
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10+ Student Loan Forgiveness, Cancellation and Discharge Programs
Student loan forgiveness might seem too good to be true, but there are legitimate ways to get it through free government programs.
The following options are available only to borrowers with federal student loans. Some programs have very specific requirements that make them difficult to qualify for, but income-driven repayment plans are open to most borrowers.
You’re not eligible for federal student loan forgiveness programs if you have private loans, but there are other strategies for managing private loan debt.
Student loan forgiveness programs
- State-sponsored repayment assistance programs: Licensed teachers, nurses, doctors and lawyers in certain states may be able to take advantage of programs to assist with repaying debt. For example, the Mississippi Teacher Loan Repayment Program will pay up to $3,000 per year for a maximum of four years on undergraduate educational loans to teachers with a specific teaching license for each year of teaching full time in a particular geographical or subject area. Contact your state’s higher education department to find out if you qualify for a program.
- Military student loan forgiveness and assistance: Military personnel in the Army, Navy, Air Force, National Guard and Coast Guard may qualify for their own loan forgiveness programs. In the National Guard, for example, qualifying soldiers and officers could receive up to $50,000 to pay off federal student loans through the Student Loan Repayment Program.
- Additional student loan repayment assistance programs (LRAPs): There may be other national or organizational student loan repayment assistance programs offered for public service professions. The National Institutes of Health, for example, offers up to $35,000 in debt assistance annually to health professionals who are appointed by the institutes to conduct research.
Equal Justice Works, a nonprofit that supports public interest lawyers, has a list of LRAPs provided by schools, employers, states and the federal government.
Student loan cancellation programs
Student loan discharge programs
Details on the application process are available at disabilitydischarge.com.
Starting in April 2018, veterans who may qualify for the program will receive a letter from the Department of Education and/or the Department of Veterans Affairs explaining their eligibility and including a copy of the application.
The caveats
Legitimate federal forgiveness, cancellation and discharge programs are free through the Department of Education, but there are other costs to consider.
- Forgiven loans may be taxable. Generally, forgiven, canceled or discharged student debt is taxed as income unless you were required to work for a certain type of employer or in a certain profession to qualify for the forgiveness. For instance, loans discharged through Public Service Loan Forgiveness are not taxable, but debt forgiven through income-driven repayment plans is taxable. Loans discharged upon a borrower’s death or permanent disability were previously taxed as income, but the latest tax code changed that. Loans discharged for this reason after Dec. 31, 2017, are not taxable.
- Beware of scams. So-called debt relief companies claim to get rid of debt but rarely deliver after charging already-struggling borrowers high upfront fees. The only way to get debt discharged is through the legitimate government programs above, and it costs nothing to apply to them.
- Forgiveness isn’t an option for defaulted loans. You’ll need to use consolidation or rehabilitation to get defaulted federal student loans in good standing before they’re eligible for forgiveness programs. If your loans won’t qualify for forgiveness, student loan settlement or bankruptcy may reduce your debt in severe cases. Defaulted federal loans are eligible for discharge programs.
About the author
Teddy Nykiel
Teddy is a personal finance writer at NerdWallet. Her work has been featured by the Associated Press, USA Today and Reuters. Read more
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SOURCE: http://www.nerdwallet.com/blog/loans/student-loans/student-loan-forgiveness/
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