Lana Oconnell
Student loan debt is a significant burden for many, but there are ways to reduce or avoid repayment. While some choose to defer or avoid payment, this can lead to a crushing debt burden in the long run. Federal student loan forgiveness programs offer a legal way to reduce or eliminate debt. These include the Public Service Loan Forgiveness (PSLF) program, which forgives loans after 120 qualifying monthly payments, and the Teacher Loan Forgiveness Program, which offers up to $17,500 in relief for teaching in low-income schools. Other options include income-driven repayment plans, which base payments on income and family size, and disability discharge for those with a total and permanent disability. Additionally, federal student loans may be discharged through bankruptcy, although this is rare. While credit cards and refinancing with home equity are options, they are not recommended due to higher interest rates and risks.
| Characteristics | Values |
|---|---|
| Loan forgiveness programs | Public Service Loan Forgiveness (PSLF), Teacher Loan Forgiveness, IDR plan, TPD discharge, Perkins Loans cancellation, bankruptcy discharge |
| Loan repayment strategies | Refinancing with home equity, using credit cards, federal repayment plans, direct debit, income-driven repayment, in-school deferment, forbearance, deferment |
| Loan repayment assistance | Employer assistance, government assistance |
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What You'll Learn
Student loan forgiveness programs
There are a variety of student loan forgiveness programs available in the US, at both the federal and state levels. Federal programs include Public Service Loan Forgiveness (PSLF), which offers tax-free loan forgiveness after 10 years of working in public service. For-profit college loan forgiveness is another option for those who attended one of the 150+ eligible colleges. Additionally, the US Department of Education and Department of Defense offer special benefits for military service members with federal student loans.
At the state level, 47 states, the District of Columbia, and Puerto Rico have unique student loan forgiveness programs. These programs often apply to specific fields such as health care, teaching, dentistry, and legal services. For example, Alabama, Alaska, and Arizona each have their own programs, with Arizona offering three different options. California and Colorado also have three programs each.
Other notable state-level programs include the Missouri Health Professional Loan Repayment Program, which offers up to $65,000 in loan forgiveness for doctoral degrees, and the Montana Agriculture Student Loan Assistance Program, which provides a minimum of $5,000 in forgiveness over five years for farmers or ranchers with degrees from approved Montana colleges or universities.
Additionally, there are other specialized forgiveness programs, such as the USDA Veterinary Medicine Loan Repayment Program, which offers up to $25,000 in annual forgiveness, and the John R. Justice Student Loan Repayment Program, which is a lottery-style program for attorneys with law school debt.
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Loan repayment plans
There are four types of federal student loan repayment plans in the US. These include standard repayment and income-driven repayment (IDR) plans, with IDR plans being the best option if you're looking for more manageable monthly payments. IDR plans tie the amount you pay back to a portion of your income and typically extend the length of your repayment period to 20 or 25 years. At the end of the term, you may be eligible for income-driven loan forgiveness for any remaining debt. There are four types of IDR plans:
- Graduated repayment: This plan lowers your monthly payments initially and then increases the amount you pay every two years for a total repayment period of 10 years.
- Extended repayment: This option starts with lower payments that increase gradually every two years, extending the total repayment period to 25 years.
- PSLF: After making 120 qualifying monthly payments under a qualifying repayment plan, you may be eligible for Public Service Loan Forgiveness (PSLF).
- Borrower defence: You can apply for borrower defence for specific reasons, and if your school closes while you're enrolled or soon after you withdraw, you may be eligible for a discharge of your federal student loan if you meet certain requirements.
Additionally, if you have a disability that severely limits your current and future ability to work, you may qualify for a TPD discharge and won't have to repay your federal student loan.
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Bankruptcy discharge
It is a common misconception that student loans cannot be discharged in bankruptcy. While it is true that it can be more difficult to discharge student loans than other types of unsecured debt, it is not true that they cannot be discharged. The myth that student loans cannot be discharged may be perpetuated by student loan companies themselves, who have been shown to fail to consistently give borrowers the information and support they need.
To discharge student loans in bankruptcy, borrowers must meet the standard of "'undue hardship'", which has been very difficult to prove. However, there is evidence that this standard is starting to be loosened, and some private loans for educational purposes can be discharged in a normal bankruptcy proceeding. For example, several types of non-qualified private student loans that are not certified by a school are automatically discharged in bankruptcy.
The Department of Justice has indicated that eligible debtors are achieving bankruptcy discharge of their federal student loan debts more easily. Between November 2022 and September 2023, 632 cases were filed, with 97% of borrowers voluntarily using the new streamlined process. In 99% of cases, the government recommended, and the court agreed to, a full or partial discharge.
Nonprofit organizations like Upsolve help people generate forms to file for bankruptcy and provide information on student debt discharge procedures.
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Teacher Loan Forgiveness Program
In the United States, there are several loan forgiveness programs that teachers can take advantage of to reduce their student loan burden. Here is an overview of the Teacher Loan Forgiveness Program (TLF):
The Teacher Loan Forgiveness Program offers up to $17,500 in loan forgiveness for teachers who meet certain eligibility requirements. To qualify for TLF, you must teach full-time for five complete and consecutive academic years at a qualifying school. At least one of those years must be after the 1997-98 academic year, and you must have been a new borrower on or after October 1, 1998. Certain highly qualified special education, secondary mathematics, or science teachers may be eligible for the maximum forgiveness amount of $17,500.
It is important to note that any time spent teaching to receive benefits through AmeriCorps or time counted toward Public Service Loan Forgiveness (PSLF) or Temporary Expanded Public Service Loan Forgiveness (TEPSLF) does not count toward the required five years of teaching for TLF. Additionally, you cannot receive benefits under both the TLF and PSLF programs for the same period of teaching service.
Federal Perkins Loan Cancellation for Teachers
Another option for teachers seeking loan forgiveness is the Federal Perkins Loan Cancellation program. This program offers up to 100% cancellation of Federal Perkins Loans for teachers who work full-time at low-income schools or teach certain subjects. Unlike other forgiveness programs, Perkins Loan cancellation forgives portions of your loans in yearly increments after meeting service requirements. For example, 15% of your loan may be canceled per year for the first and second years of service, including the interest that accrued during that year.
Other Loan Forgiveness Options
In addition to the TLF and Perkins Loan programs, there are other loan forgiveness options available, such as PSLF and the IDR plan. PSLF requires repayment of federal student loans under an IDR plan or a standard 10-year plan. The IDR plan bases your monthly payment on your income and family size, and your loan balance may be forgiven after a certain number of payments over 20 or 25 years.
It is important to carefully consider your circumstances and compare the different loan forgiveness programs to determine which one best suits your needs. You may also qualify for more than one program, but your decision to participate in one program may impact your ability to take advantage of another.
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Avoid credit cards
While it is technically possible to pay off student loans with a credit card, it is generally not advisable. Credit cards have much higher interest rates than student loans, and the fees may counteract any points earned from rewards programs. Additionally, credit card companies do not offer the same borrower protections as student loan providers, and they are not eligible for perks like student loan forgiveness.
Using a credit card to pay off student loans can also negatively impact your credit score. As your credit card balance rises, so does your credit utilization rate, which is the second most important factor in your credit score after payment history. Experts recommend keeping credit utilization below 30%. Furthermore, transferring a student loan balance to a credit card means losing consumer-friendly student loan repayment options such as forbearance and forgiveness.
There are alternative solutions to paying off student loans without resorting to credit cards. These include:
- Income-driven repayment (IDR) plans: These plans base your monthly payment on your discretionary income and can lower your payment to an affordable amount.
- Public service loan forgiveness (PSLF): If you work for a government or non-profit organization, PSLF forgives your remaining loan balance after 120 monthly payments.
- Refinancing: Refinancing your student loans can reduce your monthly payments, but keep in mind that refinancing federal loans into private loans means losing eligibility for loan forgiveness.
- Consolidation: This is a faster option if you want to enroll in school soon, but the default will remain on your credit report.
- Rehabilitation: After 9 months of reasonable payments, your loan will be in good standing, and you will regain eligibility for federal student aid.
In summary, while it may be tempting to use a credit card to pay off student loans, the risks usually outweigh the rewards. It is essential to explore alternative repayment options and make a budget to manage your student loan debt effectively.
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Frequently asked questions
You may be able to get help repaying your loans, including full loan forgiveness, through federal student loan programs. You can also apply for a disability discharge if you have a total and permanent disability (TPD).
If you don't pay your student loans, you will eventually owe so much that it will be difficult to get out of debt. Your credit score will also be affected, which will impact your ability to get credit cards, loans, and mortgages.
The PSLF program allows you to have your remaining loan balance forgiven after you make 120 qualifying monthly payments. To qualify, you must work for a qualifying employer and have the right type of student loans.
Some legal ways to avoid paying student loans include declaring bankruptcy, participating in income-driven repayment plans, and taking advantage of employer-provided student loan assistance.
