Lana Oconnell
Student loan debt is at an all-time high, with 44 million Americans carrying a total of $1.5 trillion in student loans. While there are no simple ways to get out of paying student loans, there are legitimate ways to reduce the burden. This includes student loan forgiveness programs, income-driven repayment plans, and refinancing to a lower interest rate. For those with a permanent disability, it may be possible to have federal student loans discharged, and for those who attended a school that closed while they were enrolled, there is the possibility of a closed school discharge.
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What You'll Learn
Student loan forgiveness programs
The US federal government offers several income-driven repayment (IDR) plans that can help you get around paying student loans in full. IDR plans typically allow you to cap your loan payments at a percentage of your monthly discretionary income. Payments can be as low as $0 per month. Your remaining loan balance may be eligible for forgiveness in 20 or 25 years, depending on the plan and the type of student loans you have.
If you work full time for a government or not-for-profit organization, you may qualify for forgiveness of the entire remaining balance of your Direct Loans. You may also be eligible for forgiveness 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 students.
The Segal AmeriCorps Education Award is another option. This is a benefit received by participants who complete a term of national service in an approved AmeriCorps program. After completing your service, you are eligible to receive an award that can be used to repay qualified student loans.
Additionally, if you have a disability that severely limits your ability to work, you may qualify for a TPD discharge, which means you don't have to repay any of your federal student loans.
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Refinancing to a lower interest rate
Refinancing your student loans is a good option to get a lower interest rate and save money. This option is best for those with a stable income, good credit score, and a low debt-to-income ratio.
Student loan refinancing is when you take out a new private loan to pay off your existing loans. By refinancing, you may qualify for a lower interest rate, which can significantly cut your monthly payments and the total interest paid over time. A lower interest rate can be achieved by opting for a shorter loan term. While this may increase your monthly payments, you will pay less interest overall.
There are several companies that offer student loan refinancing, including SoFi, Earnest, Citizens, and Credible. These companies offer competitive rates and flexible terms. For example, SoFi offers fixed rates starting at 4.49% APR with autopay, while Earnest offers low rates and unrivaled flexibility.
When considering refinancing, it is important to shop around and compare lenders to ensure you get the best rate and terms for your financial needs. You can use tools like Credible to compare personalized, prequalified offers from multiple lenders. Additionally, you can check your rate with some lenders without impacting your credit score.
To qualify for refinancing, you typically need to meet certain requirements, such as a minimum credit score, steady income, and low debt-to-income ratio. Applying with a creditworthy cosigner can increase your chances of approval and potentially lower your interest rate. It is also important to note that refinancing federal loans may result in the loss of certain federal benefits and protections.
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Loan cancellation for public service workers
Loan cancellation or forgiveness for public service workers is a viable option for those seeking to get around paying student loans. Introduced in 2007, the Public Service Loan Forgiveness (PSLF) Program was designed to encourage Americans to enter the public service sector. The program promises to forgive the remaining student loans of public service workers after they complete 10 years of service in those jobs while making 10 years of minimum payments. This amounts to 120 qualifying student loan payments.
PSLF eligibility depends more on the type of employer than on the type of work. Qualifying employers include government organizations at any level, AmeriCorps, the Peace Corps, and nonprofit organizations that provide a qualifying public service as their primary purpose. Religious organizations are also included. To qualify, you must work for your employer full-time, which amounts to at least 30 hours per week. If you work part-time for two qualifying employers and your time averages at least 30 hours per week, you may still be eligible.
Additionally, the Perkins Loan Cancellation program offers forgiveness after at least four to seven years of public service, depending on your job type. This option should be pursued separately from PSLF, and it is important to not consolidate Perkins loans.
While enrolled in the PSLF program, you will be on an income-driven repayment (IDR) plan, which caps monthly bills at a set percentage of your income. Contributing to a tax-deferred retirement account, such as a 401(k) or 403(b), can decrease your adjusted gross income (AGI) and, consequently, your IDR payment. This could increase the amount forgiven under PSLF.
It is important to note that individuals employed by organizations with substantial illegal purposes are not eligible for PSLF.
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Closed school discharge
If your school closes while you're enrolled or shortly after you withdraw, you may be eligible for a closed school discharge. This means that the federal government will forgive your federal student debt. If your closed school discharge application is granted, the Department will cancel the loans you borrowed to attend the closed school, refund any payments made on those loans, and delete any negative credit history for those loans from your credit report.
There are generally two ways to be eligible for a closed school discharge if you did not complete your program:
- You were enrolled in the school when it closed
- You withdrew from the school within 120 or 180 days of it closing (depending on when your loans were issued)
If your school is on the path to closure, it may offer a teach-out plan. This is when another institution agrees to take on students from your closing school to help them finish their coursework. If you decide to continue your education through a teach-out plan, you will not be eligible to have your loans canceled under the Closed School relief program. Instead, you can take the closed school discharge and later transfer your credits to another school outside of the teach-out agreement.
To apply for a closed school discharge, fill out an application and submit it to your federal loan servicer.
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Loan forgiveness for people with disabilities
If you have a disability, you may be able to get your federal student loans forgiven through Total and Permanent Disability (TPD) discharge. To qualify for TPD discharge, you must have a physical and/or mental disability that severely limits your ability to work now and in the future. In other words, you must be unable to engage in any "substantial gainful activity." There are three ways to prove your eligibility:
- Provide documentation from the U.S. Department of Veterans Affairs (VA)
- Submit a certification from your physician
- Submit proof that you are receiving Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits
If you're applying for TPD discharge, you'll need to fill out an application form and provide the required documentation. You can find the application form on the Department of Education's website. It's important to note that if you receive a TPD discharge, you may be required to pay taxes on the discharged amount.
Another option for loan forgiveness is the SAVE plan, which is the most affordable student loan repayment plan. It offers low monthly payments and a reduced time frame for loan forgiveness. Under the SAVE plan, if your monthly payment doesn't cover the accrued interest, that interest will not be charged to you, and your loan balance will not grow. This plan is especially beneficial for those with small loans.
Additionally, if you're a parent with Parent PLUS loans, you may want to consider the Income-Contingent Repayment (ICR) plan. ICR is the only income-driven repayment plan available to Parent PLUS borrowers, and it can also help you pursue Public Service Loan Forgiveness (PSLF).
Finally, remember that staying organized and keeping good records is crucial when managing your student loans. Keep your servicer updated with your current contact information and open their mail to stay informed about any problems. You can also claim your student loan interest on your tax return, which can save you money.
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Frequently asked questions
Here are some legal ways to get out of paying student loans:
- Refinance your student loans at a lower rate.
- Enroll in an income-driven repayment plan.
- Claim your student loan interest on your tax return.
- Apply for loan forgiveness programs, such as the Public Service Loan Forgiveness program.
- If you have a total and permanent disability (TPD), you may qualify for a TPD discharge.
The Public Service Loan Forgiveness program is a way for those working in the public sector to have their loans forgiven. To qualify, you must make on-time monthly payments for 10 years while being employed full-time by a public service employer or volunteering full-time with AmeriCorps or the Peace Corps.
An income-driven repayment plan bases your monthly payment on your income and family size. Under this plan, your monthly payment is limited to between 10% and 20% of your discretionary income. At the end of the term (after 20 or 25 years), the remaining balance on your student loans may be forgiven.
