With the Department of Education undergoing so many changes, student loans are at the forefront of many people’s minds. After the applications for income-driven repayment plans were temporarily closed, borrowers began to wonder about what other options exist. Thankfully, there are ways to not only get your loans canceled if you’re eligible, but also make it easy to afford your payments. Below, you’ll find information on student loan forgiveness, refinancing student loans and what to do if you’re struggling to afford your student loan payments.
What is student loan forgiveness?
Those who took out student loans may be eligible for what’s known as forgiveness, cancellation or discharge. This means that you won’t have to pay back part or all of the loan(s) you took out.
As of now, however, not all student loan borrowers are eligible for forgiveness. “The biggest misconception is that it’s easy to get, and applicable to everyone,” says Jack Wang, host of the Smart College Buyer podcast. “Loan forgiveness programs do have qualification criteria, such as employment, time and being in a repayment plan.”
Public Service Loan Forgiveness
The Public Service Loan Forgiveness (PSLF) Program, which was established by Congress in 2007, is limited to public service workers and allows those in the public sector to have the remaining balance of their loans forgiven after 10 years of service and making minimum payments.
“Anyone who has any possibility of qualifying for a loan forgiveness program should try to take advantage—as long as meeting the criteria doesn’t hurt the borrower,” shares Wang. “For example, if someone works in the public sector, PSLF should always be considered.
But what if that person wants to change jobs and leave the public sector? “I would never tell that person to stay unless they were already very close to qualifying for forgiveness,” says Wang.
You could qualify if the following situations apply to you:
- You’re a teacher. This must be for childcare or in an early childhood, public or not-for-profit education setting, and you must have a Direct Loan.
- You’re a government employee. You have a Direct Loan and work in local, state, federal or tribal government (including the military and AmeriCorps).
- You work for a nonprofit. This means you’re an employee of a qualifying not-for-profit organization, and have a Direct Loan.
- You have a disability. For this category, you must be totally and permanently disabled, plus have a Direct Loan, Federal Family Education Loan (FFEL) Program loan or Perkins Loan.
To be considered, borrowers should submit a form digitally or on paper. Access the PSLF form (and more info about the program) here.
Note: Teachers who have worked full-time for five consecutive academic years in a low-income elementary school, secondary school or educational service agency (and have a Direct Loan or FFEL Program loan) could be eligible for Teacher Loan Forgiveness. However, you can’t also receive PSLF for the same period of teaching.
School-Related Forgiveness
In some cases, the institution you were enrolled in could help you qualify for forgiveness if their actions have been unjust.
- The school closed while you were enrolled or soon after you withdrew. (Direct Loan, FFEL) Program loan, or Federal Perkins Loan).
- The school misled you or violated certain laws. (Direct Loan).
- The school falsely certified your eligibility to receive a loan. (Direct Loan or FFEL) Program loan)
- The school didn’t make the required return of loan funds to the loan servicer after you withdrew. (Direct Loan or FFEL) Program loan).
Other categories of student loan forgiveness
Other situations could make you eligible for forgiveness. This includes:
- Being a victim of forgery
- Declaring bankruptcy
- If the borrower of a PLUS loan (or the student who was using the funds for their education) dies.
If you’re not sure if these circumstances apply to you, it’s best to read more on the website. You can also find the application for forgiveness available here.
Refinancing student loans
Whether you have a private or federal loan, you may decide to refinance it, depending on your loan type. This means you take out a new, private loan to pay off the others you have, and you could potentially lower your interest rate too. In the long run, this means saving money on interest and potentially paying off the loan faster.
According to Credible.com, common requirements to qualify for refinancing include good credit, verifiable income and a low debt-to-income ratio.
But it’s not always the best option to go this route. Refinancing to a private loan means you lose access to income-driven repayment (IDR) plans and more generous forbearance provisions, says Wang. It can also affect your credit score by causing a short-term dip. (Long-term it could help improve your score over time).
“But if a borrower would not otherwise qualify for forgiveness, and their income and finances are stable enough to not need IDR plans, and they have good credit qualify for a lower rate, then refinancing can make sense,” he adds.
What to do if you can’t make your student loan payments
It’s no secret that struggling to pay back your student loans is stressful. If you’re in a situation where you don’t qualify for forgiveness, there are options out there to help you out during tough times.
1. Consider switching payment plans.
Luckily, you’re not required to stick with the student loan repayment plan you first choose—in fact, you can switch at any time! You may find that even a non-IDR plan (like the Graduated Extended or Extended) could have a smaller payment amount than an IDR plan, says Wang.
2. File for forbearance.
Forbearance, which means a pause in payments or smaller payments in the short term, is a viable option when you’re short on funds due to a situation like job loss. (One note: You only get so much forbearance—up to 12 months at once and for a limited number of times—and interest will still accrue).
3. Refinance to a longer loan term.
Though refinancing for lower interest rates is common, it’s not the only benefit. “Student loans, both federal and private, do not carry prepayment penalties,” says Wang. “Lengthen out repayment to lower the monthly payment. When your finances recover, then pay off the loan. Nobody said you have to keep the loan the entire time!”
4. Seek assistance from your employer.
“There are a number of ways employers can (and are) helping employees to pay back student loans as a financial wellness benefit,” says Patricia Roberts, chief operating officer at Gift of College, Inc. Common programs include recurring payments, signing bonuses and swapping unused pay time off in exchange for cash towards the loan.
5. Consider asking family and friends for help.
“Most borrowers likely celebrate a birthday and at least one holiday annually,” shares Roberts. “Sites like Giftofcollege.com enable borrowers (and college savers) to set up a profile and to invite friends and family to contribute toward outstanding student loan debt (or college savings goals) in lieu of more traditional gifts that are of lesser interest. Loved ones may welcome the opportunity to chip in and every contribution can be helpful.”