If you feel overwhelmed by your federal student loan debt, there may be some good news for you. There are several programs, specifically targeted at borrowers with lower incomes, designed to forgive some or all of student loan balances.
And thanks to new changes, forgiveness will be open to a wider range of borrowers than before. Teachers and other public service workers are in the best position, but virtually anyone with a low to moderate income should be able to qualify for some relief.
Teachers could have their loans forgiven quickly
Those borrowers who choose to teach could be eligible for the fastest forgiveness program out there. However, there are certain conditions that must be met.
There are two forgiveness options for teachers, but to qualify for either, you must teach for five consecutive and complete academic years at a low-income school, as defined in this directory.
As long as you meet those requirements while serving as a highly qualified full-time elementary or secondary school teacher, you can apply to have $5,000 of your student loan balance forgiven.
And, if you taught mathematics or science in a qualified secondary school, or if you worked as a highly qualified special education teacher, you could have as much as $17,500 in outstanding student loans forgiven. For more information, check out this information page by the U.S. Department of Education.
Public service: 10 years can equal thousands of dollars
For those whose employer meets the criteria of "public service," you could be eligible to have all of your loans forgiven after making 10 years of on-time payments.
Employers that meet the criteria include any federal, state, or local government agency or organization, as well as non-profit organizations designated tax-exempt by the IRS. Some private non-profit organizations without tax exemptions also qualify if they provide certain public services. Some examples of qualifying occupations include police, firefighters, teachers, health care workers (with non-profit employers), library workers, and military workers, just to name a few.
In order to qualify, you must make 120 separate, on-time monthly payments under certain repayment plans, such as income-based repayment, or IBR, or the "pay as you earn" plan, which I'll discuss more later on.
Pay as you earn
If you don't earn a ton of money, you can get some of your loans forgiven by simply making income-adjusted payments for a certain number of years.
Under the recently implemented plan, the more you make, the more you pay. Specifically, your maximum monthly payment is set at 10% of your "discretionary" income, which is defined as the difference between 150% of the poverty line and what you make.
For many borrowers, the payment under this plan will be much lower than it is under the standard repayment option. And, as long as you pay the required amount every month, whatever balance remains on your loans after 20 years will be forgiven.
This is a big improvement to the old income-dependent plan, known as IBR, which capped payments at 15% of discretionary income and forgave any remaining balance after 25 years.
Not all borrowers are eligible for this program yet (it's currently open to borrowers who took out their first loan after Oct. 1, 2007 and have at least one loan disbursement after Oct. 1, 2011), but new rules will open this up to all federal student loan borrowers at the end of 2015.
What to do in the meantime?
If you don't anticipate qualifying for any student loan forgiveness, go ahead and pay as much as you can toward your loans. However, if you should qualify for one of the options mentioned here, the best course of action is to choose the repayment arrangement with the lowest monthly payment that still allows you to qualify for forgiveness.
This will usually be whichever of the income-dependent payment options you can qualify for. And, if your remaining loan balance will be forgiven after a certain amount of time, regardless of how much you still owe, it's hard to justify paying any more than you have to.
The best course of action is to do some research on the forgiveness options and what you'll need to do to make sure you're eligible when the time comes. Make sure you keep documentation of your income, employment, and payments you make, and you could end up saving thousands over the long run.
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