Everything to know about student loan forgiveness

If you left school with student loans to pay off, you're not alone. There are over 45 million borrowers with student loan debt and the typical undergraduate with student loans now graduates with an average of approximately $25,000 in debt.

It's easy to feel overwhelmed and wonder if you'll ever pay off your loans. Student loan forgiveness — when a lender forgives the remaining balance on your debt — might sound like the answer to all of your problems. But is it a realistic option? Student loan forgiveness is possible if you have certain types of loans and meet certain conditions, but only some borrowers will qualify.

Here's what you need to know about student loan forgiveness:

Federal student loan forgiveness programs

Federal student loan borrowers have three loan forgiveness options:

1. Public Service Loan Forgiveness Program: If you work for a nonprofit organization or government agency, you may qualify for Public Service Loan Forgiveness (PSLF). Through this program, the U.S. Department of Education forgives the remaining balance on a federal Direct Loan after you make 120 qualifying payments while working full-time for 10 years for a federal government agency or nonprofit organization. Under PSLF, the forgiven loan balance is not taxable income, so you won't have any surprises when you file your taxes.

In order to qualify for PSLF, you must be enrolled in an Income-Driven Repayment Plan, which caps payments at a percentage of your discretionary income and extends the repayment terms. (More on income-driven repayment options below.)

Not all federal loan borrowers will qualify for the PSLF program. Perkins Loans or Federal Family Education Loans (FFEL) aren't eligible for PSLF unless you first consolidate them via a Direct Consolidation Loan.

You can use the PSLF Help Tool to see whether or not your loans and employer qualify for the program.

2. Teacher Loan Forgiveness Program: If you're a highly qualified teacher who works in a low-income school or educational service agency, you may qualify for Teacher Loan Forgiveness. Under this program, up to $17,500 of your Direct Subsidized and Unsubsidized Loans could be forgiven after teaching full-time for five consecutive academic years.

Highly qualified teachers are defined as individuals who:

• Have at least a bachelor's degree
• Received full state certification
• Have not had their certifications or licenses waived on an emergency, temporary, or provisional basis

Only math, science, or special education teachers qualify for the full $17,500 of loan forgiveness. If you teach another subject, you may qualify for up to $5,000 in loan forgiveness as long as you’re a full-time elementary or secondary school teacher.

You can apply for Teacher Loan Forgiveness once you've completed the required five years of service.

3. Income-Driven Repayment Plan forgiveness: If you can't afford your monthly payments under a 10-year standard repayment plan, you can reduce your payments and qualify for loan forgiveness by applying for an Income-Driven Repayment (IDR) Plan.

Under IDR plans, your loan servicer extends your loan repayment program to 20 or 25 years, and caps your monthly payment at a percentage of your discretionary income. Over time, your payments can fluctuate along with changes to your income and family size.

There are four IDR plans:

• Income-Based Repayment (IBR): You'll generally pay 10% of your discretionary income and have a loan term of 20 years.
• Income-Contingent Repayment (ICR): Your loan term is 25 years, with your payment capped at 20% of your discretionary income or what you would pay under a repayment plan with fixed payments over 12 years, whichever is less.
• Pay As You Earn (PAYE): Under Pay As You Earn, your payment is 10% of your discretionary income, but your monthly payment will never be higher than what your payment would be under a 10-year standard repayment plan. Your repayment term will be 20 years.
• Saving on a Valuable Education (SAVE – formerly REPAYE): Monthly payments for undergraduates is 10% of your discretionary income. However, in July 2024 this number will drop to 5% of discretionary income. SAVE also provides higher income exemptions than other IDR plans which could lead to lower monthly student loan payments. Additionally, there is a shorter amount of time needed to reach forgiveness for those with smaller loan principal balances. For example, if you borrowed $12,000 or less, you’ll receive loan forgiveness after making the equivalent of 10 years of payments. The maximum repayment term is capped at 20 years for undergraduate loans and 25 years for graduate loans.

If you're on an IDR plan and make your payments for the full loan term and still have a balance left over, the remaining balance is forgiven. Unlike PSLF, the discharged balance is taxable as income.

Are parents eligible for federal loan forgiveness?

If you're a parent who borrowed money to pay for your child's higher education, you may wonder if federal Parent PLUS Loan forgiveness is an option. Unfortunately, Parent PLUS Loans aren't eligible for PSLF or IDR plans. However, there is a loophole.

You can consolidate your federal Parent PLUS Loans with a Direct Consolidation Loan. Afterwards, your new loan will be eligible for Income-Contingent Repayment, one of the four IDR plans. Once you consolidate your debt, you can pursue loan forgiveness through the IDR forgiveness program. Or, if you work for a government agency or nonprofit organization, you can apply for PSLF after 10 years of making qualifying payments on your consolidated loans.

Private student loan forgiveness programs

There is no standard forgiveness program for private student loans. However, some states offer private student loan forgiveness for people working in an in-demand field in a high-need area. Lawyers, doctors, dentists, nurses, and veterinarians could qualify for state repayment assistance programs.

For example, lawyers in Florida who work for a civil legal aid association may meet the requirements for the state Loan Repayment Assistance Program (LRAP). Under the program, qualifying attorneys can receive up to $5,000 a year in repayment assistance for federal or private student loans.

In Michigan, healthcare providers can receive up to $300,000 in tax-free funds to repay their student loans through the state Repayment Program. In exchange, they must make a service commitment to provide healthcare services at nonprofit health clinics in areas with a shortage of healthcare professionals.

To find out if your state offers a loan repayment assistance program for your occupation, visit your state's department of education website.

Ready to take control of your student loan debt?

Remember that only a small percentage of borrowers typically qualify for loan forgiveness, so you may have to consider other options for reducing your debt. If you're ineligible for student loan forgiveness, another way to manage your debt is through student loan refinancing.

Refinancing may help by consolidating multiple loans into a single payment, reducing monthly payments, or obtaining a new term to pay off loans faster. However, keep in mind that if you refinance federal student loans with a private student loan, you’ll lose the benefits federal student loans offer, such as income-based repayment and loan forgiveness.† Make sure you understand all your options and learn more about student loan refinancing to see if it makes sense for your situation.