Savanna Hoffman
Student loan debt is a burden that many people carry, but there may be ways to reduce or even eliminate the burden. While defaulting on student loans can have serious consequences, such as wage garnishment and damage to credit scores, there are legal ways to seek relief. These include loan forgiveness programs, income-driven repayment plans, and loan discharge options for those with disabilities or who meet other specific criteria. Understanding these options and taking proactive measures can help borrowers manage their debt and avoid negative repercussions.
| Characteristics | Values |
|---|---|
| Loan forgiveness programs | Public Service Loan Forgiveness program, Teacher Loan Forgiveness Program, Teacher Cancellation program |
| Loan forgiveness qualifying criteria | Working for a qualifying employer, making on-time monthly payments for 10 years, teaching full-time for 5 years, teaching certain subjects |
| Loan discharge | Borrower defense, school closure, total and permanent disability, death |
| Loan discharge qualifying criteria | Physical or mental disability that severely limits ability to work, school closure while enrolled, death |
| Wage garnishment | Up to 15% of wages may be deducted if payments are missed or loan is in default |
| Preventing wage garnishment | Object if unemployed for 12 months, request a hearing, contact loan servicer to discuss options |
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What You'll Learn
Loan forgiveness for public sector workers
Student loan forgiveness is possible if you meet the requirements for one of the several loan forgiveness programs. Public Service Loan Forgiveness (PSLF) is a federal program that can erase your student loan balance after 10 years' worth of monthly payments (120 in total) while working full-time for the government or a nonprofit organization. Qualifying employers can include government organizations at any level, AmeriCorps, the Peace Corps, and religious organizations. You can sign up for an income-driven repayment (IDR) plan that caps monthly bills at a set percentage of your income.
If you teach full-time for five complete and consecutive academic years in certain elementary or secondary schools or educational service agencies that serve low-income families, you may be eligible for forgiveness of up to $17,500. The Teacher Education Assistance for College and Higher Education (TEACH) Grant service obligation does not need to be fulfilled if you get a TPD discharge. A TPD discharge applies if you have a disability that severely limits your ability to work now and in the future, whether it be physical or mental.
Perkins Loan Cancellation offers forgiveness after at least four and seven years of public service, depending on your job type. You can still participate in PSLF with your other federal student loans. The PSLF Help Tool can help you certify periods of employment and track progress toward forgiveness.
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Loan forgiveness for teachers
If you're a teacher with student loans, there are several loan forgiveness programs that you may be eligible for. Here is some information on the various programs and how they can help you:
Public Service Loan Forgiveness (PSLF)
The PSLF program is a good option for teachers with federal student loans. It allows qualifying federal student loans to be forgiven after 120 qualifying payments for people working in public service, which includes many teachers. You can use the PSLF Help Tool to confirm whether you qualify and check if your previous payments have counted.
Teacher Loan Forgiveness (TLF) Program
The TLF Program provides loan forgiveness for highly-qualified teachers in certain low-income schools. To qualify for TLF, you must teach full-time for five complete and consecutive academic years in eligible elementary or secondary schools or educational service agencies that serve low-income families. After fulfilling these requirements, you may be eligible for up to $17,500 in loan forgiveness for Direct Subsidized and Unsubsidized Loans and Subsidized and Unsubsidized Federal Stafford Loans. Certain highly qualified special education, secondary mathematics, or science teachers can qualify for the full $17,500 in forgiveness. Other eligible teachers can qualify for up to $5,000.
It's important to note that Direct PLUS Loans, FFEL PLUS Loans, and Perkins Loans are not eligible for forgiveness through TLF. Additionally, any time spent teaching to receive benefits through AmeriCorps or time counted toward PSLF or TEPSLF does not count toward the required five years of teaching for TLF.
Perkins Loan Cancellation
If you have Federal Perkins Loans, this program can offer forgiveness specifically for teachers. It forgives up to 100% of your Federal Perkins Loans if you teach full-time at a low-income school or teach certain subjects. Unlike other forgiveness programs, Perkins Loan cancellation forgives portions of your loans in yearly increments as you meet service requirements.
Other Options
There are also other circumstances that may qualify you for loan discharge or forgiveness outside of these programs. For example, if your school closed while you were enrolled or soon after you withdrew, you may be eligible for a closed school discharge if you meet certain requirements. Additionally, if you have a disability that severely limits your ability to work, you may qualify for a TPD discharge, which would forgive your federal student loans.
Remember, it's important to carefully review the requirements and eligibility criteria for each program to determine which option is best for your specific situation. You can also reach out to your federal loan servicer or the Federal Student Aid Information Center (FSAIC) for more personalized guidance.
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Loan forgiveness for military service members
If you are a military service member, there are several options available to help with student loan forgiveness. Firstly, it is important to understand that the type of loan and your military status play a significant role in the relief options accessible to you. Federal student loans offer certain automatic benefits, while private student loans may require a written request along with proof of your active-duty orders.
The Servicemembers Civil Relief Act (SCRA) allows you to obtain an interest rate reduction on your student loans to 6%. For private loans, you may need to submit a written request, while for federal loans, this reduction is automatic. Additionally, active-duty service members and National Guard members under federal orders may qualify for loan deferment, forbearance, cancellation, or suspension of interest accrual on federal student loans.
The Army, Navy, Coast Guard, and National Guard offer student loan repayment programs. The Army and Navy will repay up to $65,000, the Coast Guard will repay up to $30,000, and the National Guard offers up to $50,000. It is important to note that these amounts are maximum values and may vary based on funding and specific military specialties. After each year of active duty, your respective service branch will make a payment of 1/3 or $1,500, whichever is greater, towards the remaining original unpaid principal balance.
Public Interest Loan Forgiveness (PILF) is another option to consider. This program requires ten years of public service (which includes military service) and ten years of continuous payments during your service. Income-driven payments are also accepted under this program.
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Loan discharge for permanent disability
One way to have your student loans discharged is by applying for Total and Permanent Disability (TPD) discharge. To qualify for TPD discharge, you must have a disability that severely limits your ability to work, both now and in the future. This can be a physical or mental disability. If your application for TPD discharge is successful, you won't have to repay any of your federal student loans or complete your Teacher Education Assistance for College and Higher Education (TEACH) Grant service obligation.
In most cases, you will need to provide specific kinds of proof of your disability and you may be subject to a post-discharge monitoring period. During this time, your discharged loans could be reinstated. However, some people are automatically eligible for TPD discharge if they are identified by the Social Security Administration or Veterans Affairs.
The U.S. Department of Education and Department of Defense offer special benefits for military service members with federal student loans. You can find out more about qualifying and applying for TPD discharge online.
Please note that there will be a pause in the processing of discharges for TPD from 20 December 2024, as systems are updated and streamlined. You can still submit TPD forms during this time, but some discharges may not be finalised until Spring 2025.
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Loan deferment or forbearance
If you need to take a break from your student loan payments, you can consider deferment or forbearance. These options can help you avoid defaulting on your loan, but they are not good long-term solutions.
Loan Deferment
Loan deferment is generally a better option than forbearance if you qualify. You may qualify for a deferment if you are:
- Attending school at least half the time
- Unemployed
- Receiving state or federal assistance
- Earning a monthly income below 150% of your state's poverty guidelines
- On active military duty or in the Peace Corps
- Undergoing treatment for cancer
Additionally, loan deferment is a good option if you have subsidized federal loans or Perkins loans. These loans do not accrue interest during deferment, so the amount you owe at the end of the deferment period will be the same as when it began.
Loan Forbearance
Loan forbearance may be a better option if you do not qualify for deferment and expect your financial challenges to be temporary. Forbearance allows you to pause your loan payments and direct the money towards other expenses. While your loans are in forbearance, interest will continue to accrue, and you will be responsible for paying it. Forbearance typically lasts for at least 12 months.
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Frequently asked questions
There are a few legal ways to avoid paying your student loans. If you have a total and permanent disability (TPD), you may qualify to have your federal student loans discharged. Similarly, if you are experiencing bankruptcy, you may be able to discharge your loans. Teachers can also qualify for the federal Teacher Loan Forgiveness Program if they have taught low-income students full-time for five consecutive years.
If you don't pay your student loans, your lender or servicer may take legal action against you or your co-signer, or take payments by garnishing your wages or withholding your tax refund. Your missed payments will also be reported to credit reporting companies, which will hurt your credit score.
For federal student loans, you may be able to lower your monthly payment by enrolling in a payment plan based on your income or a plan that extends the amount of time you will have to repay your loan. For private student loans, there are no standard options to lower your monthly payments, but some lenders may offer modified repayment plans.
