Here’s How To Find Out If You’re Eligible For Student Loan Forgiveness

Marissa Daniel
Apr 20, 2021

Student loan forgiveness seems a little bit like a myth, right? How do you actually know if you're eligible for student loan forgiveness? Well, not only have we debunked the myth, but we also show you that student loan forgiveness is possible - and exactly how to know if you qualify for it.

Ever thought of faking your own death or moving to a foreign country to get out of paying your student loans?

What if we told you that there was a better, much more legal way to get out of student loan debt? Student debt is a $1.5 trillion-dollar problem and it's estimated that roughly 50% of student loan borrowers qualify for some type of student loan forgiveness.

These are typically repayment plans where after a certain period of time, your student loan debt is forgiven, which means it’s erased and you’re no longer on the hook for it. Sound too good to be true? It’s not, but there are some key things you need to know first. Here are the best programs to get your student loan forgiven, the pros and cons of each, and some tips on how to apply.

Income-based student debt forgiveness

If you’re struggling with high student loan payments you can apply for an income-driven repayment option. Choosing the Pay As You Earn (PAYE) plan could help make your monthly dues more affordable. On the PAYE plan, eligible students can have their monthly student loan payments reduced to 10% of their discretionary income. After 20 years (or 240 payments), all remaining student loan debt is forgiven.

Certain other programs, like REPAYE or Income-Based Repayment plans, offer forgiveness after 20 to 25 years. But these plans have a hidden cost at the end of the road. For instance, just because the government has forgiven your debt doesn’t mean the IRS will do the same.Once you reach the end of your forgiveness window, you could be hit with a massive tax bill (forgiven loans are considered income to the IRS).

So you’re not left scrambling, it’s a good idea to set aside some extra money to cover this expense. If you’d rather not deal with a hefty tax bill in 20 or so years, there are tax-exempt options for student debt forgiveness, but the requirements are very specific. For this post, we’ll cover the two biggest ones: the Public Service Loan Forgiveness program and the Teacher Loan Forgiveness program

Public Service Loan Forgiveness

The Public Service Loan Forgiveness (PSLF) program is one of the fastest ways to become completely student loan debt-free. If you qualify, you can have your loans forgiven in just ten years.

The catch? You need to jump through a lot of hoops just to get started. In fact, only 206 borrowers have successfully tapped into this $350 million dollar resource since October 2017. However, unlike other forgiveness programs, there currently isn’t any limit to how much debt can be forgiven, so this program could save you some serious cash. Plus, your debt will be forgiven by both the government and the IRS, so you don’t have to worry about surprise tax bills.  

Currently, this forgiveness program only applies to:

  • Direct Loan borrowers employed full-time or for 30-hrs a week (whichever is greater) for a Federal, State, or Local government employer over a period of ten years.
  • Not-for-profits who have applied for an exemption with the Internal Revenue Code under s. 501 (C) (3)

Direct loans are taken directly out of your bank account whenever a payment is due. The list of repayment plans are as follows:

  • Contingent Repayment
  • Income-Based Repayment
  • Pay As You Earn
  • Revised Pay As You Earn
  • Standard Repayment  

If you have a different type of loan, like a Federal Family Education Loan (FFEL) or a Perkins Loan, you could still qualify for the PSLF program, but you’ll have to consolidate those loans into a single monthly direct deposit payment.

However, keep in mind that if you do this, it will reset any benefits you may have been working towards under your previous loan plan. In other words, any payments filed before combining your student loans into one payment would not count towards your total 120 PSLF payments.

Once you’ve met all the requirements for the PSLF program, you’ll need to submit this form to the FedLoan Servicing branch of the U.S Department of Education. See? We weren’t kidding about the hoops.

But if a complicated application process is all that stands between you and thousands (or even hundreds of thousands) of dollars in forgiven debt, we think it’s still worth a shot.

Teacher Loan Forgiveness

Teacher Loan Forgiveness is the speediest of the bunch of student loan forgiveness programs, but unfortunately, as the name implies, it only applies to teachers. Still, if you’re eligible, you could be free of that student loan debt ball and chain after five years of consecutive employment.  And like the PSLF program, your debt will be forgiven by both the government and the IRS, so you don’t have to worry about surprise tax bills.

But there’s still a catch - the maximum loan forgiveness for teachers is currently capped at $17,500.

To qualify for the highest possible forgiveness, applicants need to be:

  • Working at a school which serves low-income students
  • Employed full-time in math or science
  • Employed full-time in special education
  • A ‘highly qualified’ teacher

How do you know if you’re highly qualified? These are teachers that have successfully completed their bachelor’s degree, received full state certification as a teacher, and have never had their certification or license taken away, even temporarily. 

Biding your time

Don’t qualify for the above programs? Or maybe you’re still in school and wondering if there’s anything you can do right now to reduce your debt? Don’t panic - you definitely still have options.

One of the best ways to get started is to take a look at filling out the Department of Education’s 1098-E Tax Form during tax season. If the interest you’ve paid on your student loans was $600 or more, your loan provider will send you this form automatically. If you use it, your loan interest will be deducted from your taxable income at the end of the year, up to a maximum value of $2,500.  

Another great option, for those still in school, is to check out Form 1098-T. This document lets you report some tuition expenses on your tax return, which can open up income adjustments or extra tax credits.

Clearing away your student debt is not easy, but there are some ways for you to lighten your debt load. If you’re eligible for the above student loan forgiveness programs, be sure to apply. You could be just a few forms away from making those annoying monthly payments a thing of the past.

If all else fails and you want to knock your student loans out fo the water, you should consider refinancing your student loans to start saving money on your monthly payments and paying off your debt faster.