If you have a large amount of student loan debt, it might seem like you’ll never be able to pay it off. If you’re feeling overwhelmed by your student loans, it could be a good idea to look into student loan forgiveness programs.
While it could take up to 10, 20, or 25 years to qualify for federal student loan forgiveness, some programs could help to reduce your monthly payments right away to lessen the strain on your budget.
In some cases, you might even be eligible to have your student loans discharged immediately — for example, if your school has closed or you’ve become totally and permanently disabled.
Here’s what you should know about student loan forgiveness programs.
Public Service Loan Forgiveness
While private student loan forgiveness unfortunately doesn’t exist, several federal student loan forgiveness programs are available.
One of the most well-known federal programs is Public Service Loan Forgiveness (PSLF), which is geared toward borrowers working in public service jobs. If you qualify, your loans will be forgiven tax-free. To be eligible, you must:
- Have federal Direct Loans.
- Work full-time for a not-for-profit or government employer.
- Make 120 qualifying payments on an income-driven repayment plan.
While FFEL Program and Perkins Loans aren’t eligible for PSLF, you might qualify by consolidating them into a Direct Consolidation Loan, which is eligible for PSLF.
How many people have had their loans forgiven?
For PSLF forms submitted between November 2020 and June 2023, loan servicers deemed 121,221 applications out of 3,728,674 eligible for PSLF, according to StudentAid.gov. As of June 2023, borrowers who qualified for PSLF have collectively had more than $1.8 billion worth of student loans discharged so far.
However, this means that only 3% of applications were approved.
Some of the main reasons behind rejected applications include making non-qualifying payments and working less than required at a qualifying employer. If you’re planning to apply for PSLF, be sure to regularly track your progress. Federal Student Aid’s PSLF help tool can help you confirm your eligibility and submit required forms.
Income-driven repayment
The U.S. Department of Education offers four income-driven repayment (IDR) plans that base your monthly payments on your income and household size. Depending on the plan, you could qualify for loan forgiveness in 20 to 25 years — though keep in mind that unlike PSLF, the forgiven amount under an IDR plan is considered taxable by the IRS.
You can choose from these four IDR plans:
- Saving on a Valuable Education (formerly called Revised Pay As You Earn)
- Pay As You Earn
- Income-Based Repayment
- Income-Contingent Repayment
Saving on a Valuable Education
The Saving on a Valuable Education (SAVE) plan is one of the most affordable IDR plans available.
Formerly known as Revised Pay As You Earn (REPAYE), the SAVE plan is available to all borrowers with eligible federal student loans. Your payments will be 5% to 10% of your discretionary income depending on whether you have undergraduate or graduate loans. If you have undergraduate loans, you could qualify for forgiveness after 20 years. With graduate loans, your balance will be forgiven after 25 years. Those who borrowed less than $12,000 can earn loan forgiveness in as little as 10 years.
Notably, if your payments are too small to cover all accrued interest, the government will cover any remaining amount. This means that as long as you make regular payments, interest will not be added to your balance.
In the news: Due to a federal court ruling on July 18, 2024, the SAVE Plan is temporarily on hold, and current borrowers enrolled in SAVE are being moved into forbearance. You can still apply for the SAVE Plan, but expect delays in processing and potential changes due to ongoing litigation.
Pay As You Earn
Pay As You Earn (PAYE) is only available if your monthly payment would be less than it would be on the standard 10-year repayment plan — which means you have a partial financial hardship. You must also have taken out your loans after Oct. 1, 2007.
On PAYE, your payments will be 10% of your discretionary income, and any remaining balance will be forgiven after 20 years.
Tip: No matter which IDR plan you choose, you’ll have to annually recertify your income and family size — essentially meaning that you must reapply each year. Be sure to keep track of when you’ll need to recertify and do so before the deadline. Otherwise, you could be removed from the plan and your payments could increase significantly.
Income-Based Repayment
Like PAYE, you must demonstrate a partial financial hardship to qualify for Income-Based Repayment (IBR). If you took out your first loan on or after July 1, 2014, your payments will be 10% of your discretionary income, and any remaining balance will be forgiven after 20 years.
For older loans, your payments will be 15% of your discretionary income, and any remaining balance will be forgiven after 25 years.
Tip: Unlike with PSLF, any student loans forgiven through an IDR plan are considered taxable income. However, the American Rescue Plan Act of 2021 has temporarily made all student loan forgiveness tax-free through 2025 — meaning you likely won’t face a tax bill if you qualify for IDR forgiveness in the next few years.
Income-Contingent Repayment
Any borrower with federal student loans can sign up for Income-Contingent Repayment (ICR). You can also sign up with parent PLUS loans if you’ve consolidated them to a Direct Consolidation Loan.
Under ICR, your payments will be either 20% of your discretionary income or what you’d pay on a fixed repayment plan for 12 years (adjusted for income). Your remaining balance will be forgiven after 25 years.
Important: If you need to lower your student loan payment, student loan refinancing could be a useful option. If you refinance, you could reduce your monthly payment by extending your repayment term. Or you might qualify for a lower interest rate, which would reduce your overall costs. Just keep in mind that if you refinance your federal student loans, you’ll lose access to federal benefits and protections, including these forgiveness programs.
