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A guide to student loan forgiveness

Who qualifies? What loans qualify? How to apply? How does the new bill affect student loan forgiveness?

Student loan forgiveness was created to lessen the burden of student loans for graduates in the public service sector. Additionally, with the current pandemic causing financial hardships around the world and across the U.S., new rules and options have been put in place to help Americans with student loans during these uncertain times. 

Who qualifies?

  1. People with federally-held loans –The Coronavirus Aid, Relief, and Economic Security (CARES) Act has automatically suspended principal and interest payments on federally-held student loans through September 30, 2020. If you have a federally-held student loan, you don’t have to apply. The suspension was automatic starting March 13, 2020. Additionally, interest will not accrue through September 30, 2020. If you can make your payments, the full amount will be applied to the principal, which can help you pay it off faster. 

    If you have a Federal Family Education Loan (FFEL) or Perkins Loan that is owned by a commercial (private) lender, institution or school, your payments could still be due and you might not qualify for the CARES Act provisions. Only federally-held loans are suspended. Contact your lender directly to confirm if and/or when payments are due. 

    Also, remember that those with private student loans are not part of the federal suspension of payments or interest. These lenders are not required by law to suspend payments or interest accrual, but may do so since they have been authorized to grant a 90-day forbearance to borrowers affected by the pandemic. Contact your lender for options and other benefits. 
    To learn more about your options, the Consumer Financial Protection Bureau (CFPB) continually updates information about student loan payment protection during the pandemic at consumerfinance.gov.
     
  2. Public School Teachers - To qualify for the Teacher Forgiveness Program, you need to teach full-time at a qualifying, low-income school for five full and consecutive years. The U.S. Department of Education publishes the list of low-income elementary schools and secondary schools each year. Those teachers are eligible to have from $5,000 to up to $17,500 in loans forgiven.
  3. Military - From the Coast Guard to the Marines, each branch of the military has its own student loan forgiveness program. Forgiven loan amounts usually depend on the level of rank achieved. Contact your branch to learn more about options.
  4. Income-Based Repayment Plan - The Income-Based Repayment Plan adjusts your monthly loan payments to be no more than 15% of your "discretionary" income (the amount of money you make that falls above the federal poverty level). If approved, after 25 years of making these adjusted loan payments, the your remaining balance is completely forgiven.
  5. Public service, government or non-profit job - To receive loan forgiveness under this program, you must be a full-time employee (at least 30 hours per week) in a public service job and make 10 years of on-time monthly payments after consolidating your federal loans in a qualified repayment program. The most common public service careers are in education, law enforcement, health, public law, and veterinary medicine.

Qualifying jobs:

  • Any job in a government organization at the federal, state, local or tribal level
  • Not-for-profit organizations that are designated tax-exempt under Section 501(c)(3)
  • Other not-for-profit organizations that are not tax-exempt but provide a qualifying public service
  • Full-time AmeriCorps and Peace Corps volunteers

What student loans are eligible?

This student loan forgiveness option is available for Direct Federal Student Loans, Direct Plus loans and Direct Consolidation loans. Private student loans are not eligible for Public Service Loan Forgiveness.

Will I be eligible for student loan forgiveness if I refinance my student loans?

Federal loans offer specific protections for some borrowers including loan forgiveness, deferment, and forbearance. The option for student loan forgiveness, deferment, and forbearance will be lost by refinancing a federal loan to a private loan. If you have refinanced your federal loan to a private student loan, you will not be eligible for student loan forgiveness.

How do I apply for student loan forgiveness

You must fill out a Employment Certification Form every year and make pay stubs, W-2 forms or other documentation available as requested. Once this form is submitted, all of your loans will be transferred to FedLoan Servicing, the designated loan company for the Public Service Loan Forgiveness Program.

How does the new education bill affect student loan forgiveness?

The new bill proposed would eliminate the program of student loan forgiveness to anyone who didn’t enroll by July 1, 2018. Changes to loans would apply to borrowing after July 1, 2019, not including those loans provided to borrowers to finish their current education.Not intended as tax advice. Please consult a tax professional regarding your unique situation.

Next steps?

The First Tech Student Loan team is very familiar with federal programs and will be able to help you determine which programs make sense for you. Contact us today.