Federal loan forgiveness programs are offered by the U.S. government and/or administering colleges to specific groups of college graduates – including certain teachers, nurses, and other qualifying providers of public service. In exchange for work agreements that benefit disadvantaged communities or under-staffed public offices, these opportunities may allow graduates to wipe away some portion of their federal student loans – including Perkins Loans, Direct (Stafford) Loans, or Federal PLUS Loans. Federal loan forgiveness programs usually do not excuse private student loans.
The terms of each loan forgiveness program are different and quite specific. Before you accept a student loan based on plans to have it forgiven, be sure you understand the post-graduate employment that’s required and, if possible, investigate how and where you might obtain the necessary employment. Even then, you should never make career decisions or higher education plans based solely on financial aid incentives, which are often subject to available funds and legislative renewal.
Federal Perkins Loan Teacher Cancellation
Description: Teachers who financed their college education with a Federal Perkins Loan may qualify to have all or part of that loan cancelled after teaching full-time, for one or more years, in a low-income school system, as a special education teacher, or in a subject area that has a teacher shortage (usually math, science, and bilingual education, though actual shortage area lists vary by state). Teachers must apply for loan forgiveness through the college that administered the loan.
Amount: Up to 100 percent of a Federal Perkins Loan. In order to qualify for 100 percent loan forgiveness, a teacher would need to work full-time, for five school years, in a qualifying role. Lesser percentages of a Perkins Loan may be forgiven in the following increments:
15 percent forgiven after first year
15 percent forgiven after second year
20 percent forgiven after third year
20 percent forgiven after fourth year
30 percent forgiven after fifth year (total 100 percent)
Requirement 1: The recipient must be a full-time employee of a public (or private, nonprofit) school, teaching special education or a subject identified as a shortage area. More information on what constitutes special education and subject shortage areas is available on the Federal Student Aid website.
Requirement 2: If the recipient is not a special education teacher or a teacher in a subject shortage area, he must be teaching in a “low-income” school. Each state is responsible for determining which schools qualify as “low-income” within its borders.
Description: Various government agencies have the authority to design and offer student loan repayment programs to highly qualified new hires and to current employees.
Participating agencies include (but are not limited to) the Department of Homeland Security, the Department of Health & Human Services, the Department of Veterans Affairs, and the Department of Commerce. The types of professionals receiving this benefit include attorneys, nurses, business analysts, engineers, accountants, human resource specialists, plus other administrators and assistants.
Amount: Federal employee recipients may be credited up to $10,000 per year, towards qualifying student loans. There is a lifetime limit of $60,000 per individual. Payments are made directly to loan providers, not to employees.
Requirement 1: The funds must be used to pay off a federal student loan, which was made under the Higher Education Act of 1965 (including Perkins Loans, Stafford Loans, and Direct PLUS Loans) or the Public Health Service Act.
Requirement 2: This program is intended as tool to recruit and retain quality employees. As such, individual government agencies establish their own guidelines about which student loans they will repay in terms of degree type and degree level.
Description: The Public Service Loan Forgiveness (PSLF) Program aims to keep qualified college graduates in the fields and jobs that are most important to our country. The program forgives the entire balance of a qualified candidate’s federal student loan, after the candidate has made 120 payments on the loan – in other words: 10 years of payments. The program is designed for 10-year employees in public service fields, including public safety, law enforcement, public education, public health, public library services, military service, and emergency management.
Amount: Whatever remains of any non-defaulted federal student loan (made under the Direct Loan Program) after 10 years of on-time payments. Since many of the qualifying jobs for this benefit are relatively low-paying, it may be advisable to select an income-based repayment plan if you are planning to apply for forgiveness. That way, you’ll be required to make lower monthly payments during the early years of your career, and the government may “forgive” more of what’s left over.
Requirement 1: The recipient must be a full-time employee of a public service organization at the time of her application for loan forgiveness, while making her 120 loan payments, and at the time the loan balance is forgiven. Qualifying public service employers may include federal, state, local, or tribal government agencies; nonprofit organizations with 501 (c) (3) designation from the IRS; or even some private employers.
Requirement 2: The recipient must make all 120 payments in full and on time (within 15 days of the due dates).
Requirement 3: The loan must be a loan type issued through the Federal Direct Loan Program. A Federal Perkins Loan, for example, would not meet this requirement unless the Perkins loan was bundled with other student loans via a Federal Direct Consolidation Loan.
Description: The U.S. Department of Health & Human Services may pay up to 85 percent of nursing education loans for registered nurses who agree to work in under-staffed, nonprofit healthcare facilities or schools. Recipients must agree to work for a two-year period at a qualifying school or facility. For additional repayment funds, recipients may add a third year of work service.
Amount: Up to 60 percent of the recipient’s outstanding student loans (for qualifying loans only) or up to 85 percent of loans, if serving a three-year commitment.
Requirement 1: Recipients must be registered nurses (RNs), having earned their credentials through a diploma, associate, bachelor (BSN), or master degree (MSN) nursing program. They must also be employed full-time at a “critical shortage facility.” LPNs and LVNs do not qualify.
Requirement 2: Recipients must agree to work for at least two years at a qualifying facility. They cannot leave their posts for more than seven weeks per year – including vacations, holidays, or even maternity leave – unless they agree to add missed time to the end of the two-year contract.
The Teacher Loan Forgiveness Program (a.k.a. Stafford Loan Forgiveness Program for Teachers)
Description: Teachers who financed their college education with Federal Direct (Stafford) Loans may wipe away up to $5,000 of those loans after teaching full-time, for five academic years, in a low-income school system. Highly qualified math, science, and special education teachers may qualify for an additional $12,500 in loan forgiveness (for a total of $17,500), as these areas are especially difficult to staff in low-income school districts.
Amount: Up to $5,000 or up to $17,500 in loan forgiveness benefits, depending on the subject area being taught
Requirement 1: The recipient must be a highly qualified, elementary or secondary teacher at a public (or private, nonprofit) school for five consecutive years.
Requirement 2: The recipient must be teaching in a “low-income” school, as is defined by each state in a low income directory. In order to qualify for the full amount of loan cancellation ($17,500), the recipient must be teaching math, science, or special education, and have that assignment validated by the school’s Chief Administrative Officer.
Note: Even if you don't fit into any of the preceding public service employment categories, you may wish to explore Income-Based Repayment (IBR) Plans, which are available to qualifying, federal student loan borrowers. IRB Plans consider your adjusted gross income and your household size in determining a monthly loan payment you can afford. Some students may be temporarily excused from making any loan payments at all, if their income is low enough. In a sense, this may be considered another type of loan forgiveness - albeit temporary.
In accordance with an IRB agreement, you would need to submit annual updates on your income and household size. Changes to either one could increase or decrease your required monthly payments. After 25 years, any remaining loan balance would be forgiven. (By 2014, IRB repayment periods may be capped at 15 years.) To learn more about IRB Plans, contact your loan servicer or visit the Department of Education's website.