Student loan debt is a massive, difficult-to-understand beast. While you've no doubt heard of the graduate with over $100,000 in debt, these students aren't where the real trouble is -- they're in high-earning fields like medicine or law. Instead, defaults are coming from smaller borrowers who still can't find a way to make payments. For these students, federal loan forgiveness could be a life-saver.
There are actually lots of little-known ways to obtain federal loan forgiveness, but two avenues are by far the most popular and relevant: teacher loan forgiveness, and public service loan forgiveness.
Federal loan forgiveness via teaching
Before getting started, its crucial to understand that very few students will ever get all of their federal student loans forgiven by teaching. That's because for most teachers, the cap on forgiveness stands at a total of $5,000. The average graduate who took a loan left college with $28,400 in debt in 2013, according to The Institute for College Access & Success.
And not every teacher will qualify for this $5,000 forgiveness, either. In order to get this, one must:
- Be a teacher for five complete and consecutive academic years.
- Teach at a high-needs school -- defined as qualifying for funds under Title I, having at least 30% of students qualify for Title I funds, or being listed in a federal directory for high-needs schools.
- Not be in default on the loan payments made during the first five years.
For students looking to get more federal loan forgiveness, there's hope. Under certain circumstances, students can get substantially more. If you were to qualify in one or both of the following circumstances, you could get up to $17,500 in loan forgiveness if you teach for the aforementioned five complete and consecutive years in qualifying schools:
- Be a highly qualified, full-time teacher in math or sciences at a secondary school.
- Be a highly qualified, full-time special education teacher, "whose primary responsibility [is] to provide special education to children with disabilities, and you [teach] children with disabilities that corresponded to your area of special education training."
Such loan forgiveness can go a long way in helping today's teachers get the type of financial independence they so rightly deserve.
Federal loan forgiveness via public service
A second type of federal loan forgiveness is also available, but there is a longer timeline attached to qualifying, and there are more strings attached than with teaching. In order to qualify for this type of forgiveness, you need to work for 10 years, full time, at an organization[s] that:
- Is a government organization, at federal, state, or local level.
- Is a non-profit that qualifies for Section 501(c)(3) tax-exempt status.
- Is a non-profit that is not tax-exempt, but provides a qualifying public service.
Importantly, you must establish 120 consecutive loan repayments before you can qualify to have the remainder of your federal student loan forgiven. That's 10 years without a missed payment.
You might look at that figure and realize that the average federal student loan is paid back over 10 years. In theory, you should have completed all of your payback after 10 years -- making the loan forgiveness completely pointless.
But because non-profit employees often make less than their private-sector counterparts, you can schedule to have your student loan payments take place over a longer timeframe. In this situation, payments are made based on a certain percentage of your disposable income. Whatever is left on your loan after you qualify for this type of forgiveness is wiped clean!
Another important caveat is that only federal loans obtained through the William D. Ford Federal Direct Loan Program are eligible for forgiveness. If you have Perkins or FFEL loans, they don't qualify.
There is, however, a workaround. You can consolidate your Perkins and/or FFEL loans under your Direct Loan, and they can all qualify for forgiveness. The catch is that the necessary 120 consecutive loan payments will restart once consolidation occurs. So, if you're going to take advantage of this option, do it early!
Student loan decisions have lasting effects
There's high anxiety in America about saving for retirement, and college loans are a major reason for this anxiety. Between still paying off their own student loans and sacrificing retirement savings to pay for their children's tuition, Baby Boomers are being squeezed.
The result is a situation where nest eggs are being rapidly depleted, and seniors are looking to work far beyond their intended retirement age.