Student Loan Forgiveness Programs
With the rising cost of tuition, prospective students are beginning to wonder whether or not attending college is actually worth the price. Who can blame them? The amount of student loans that people are taking on is increasing every year, and it has ruined many people’s lives. They are looking for student loan relief. Many of the companies who are providing these loans are predatory in nature and are taking advantage of people’s desire to make a better life for themselves.
Luckily, it appears that the college tuition bubble is getting ready to break since people are becoming so fed up with the cost. As more and more people push for more reasonable tuition and student loan debt forgiveness, the leadership in our country is going to have to make a decision. We’re already starting to see it with the Obama Student Loan Forgiveness Program and other federal student loan forgiveness programs. The following is an overview of what some of the programs look like.
Obama Student Loan Forgiveness Program
While most people know the program as the Obama Student Loan Forgiveness Program, it is actually a federal student loan forgiveness program called the William D. Ford Direct Loan Program. It is only known as the Obama program because he is the one who signed the bill into law. It is important for people to know that Obama Loan Forgiveness is a federal student loan forgiveness program, so only federal loans are forgiven under this bill.
According to studentdebtrelief.us, a website that specializes in student debt relief, Mr. Obama changed four things in his Obama Loan Forgiveness Program:
- The federal government will no longer give subsidies to private lending institutions for federally backed loans.
- Borrowers of new loans starting in 2014 will qualify to make payments based on 10% of their discretionary income.
- New borrowers would also be eligible for student loan forgiveness after 20 years instead of 25 on qualifying payments.
- Money will be used to fund poor and minority students and increase college funding
These benefits for students are huge. These changes make it much easier for students to choose a plan that they can actually afford to pay back instead of risking their entire future. There are now five different types of repayment plans.
The first plan is the standard repayment plan. Under this plan, borrowers pay a fixed amount each month until the loan is finally repaid. This includes both the borrowed amount and the interest that accumulates on the loan.
The second plan is the graduated repayment plan. This is structured in a similar way to the standard repayment plan, but the payments start out much lower. As time goes on, the rate that the borrower pays each month goes up every two years.
The third plan is the income contingent plan (ICR). Under this plan, the amount that borrowers pay is based on their income level, their family size, their loan balance, and their interest rate. People using this program can pay as little as zero dollars a month depending on all of these factors.
The fourth plan is the income based plan (IBR). Borrowers using this plan pay each month based solely on their income level and family size. The government does not factor in your loan balance or interest rate under the IBR. Under this plan, you are generally expected to pay 15% of your income to your loans, but some people will qualify to not pay anything at all until their income reaches a certain threshold.
The fifth plan is the pay as you earn plan (PAYE). Usually this plan requires the lowest monthly payment, but it is also the most difficult to qualify for. Borrowers pay 10% of their income each month instead of the 15% in the IBR. Some borrowers may pay as little as zero dollars per month.
If you qualify for the Income Contingent, Income Based, or Pay As You Earn repayment plans, you then have the opportunity to be forgiven for the remainder of your loans at the end of the term. A term generally lasts 20-25 years, so if you make your payments for that time period and still have some left over, you will not have to pay that remaining balance.
Public Service Forgiveness
For people who work in public service jobs, they are eligible for loan forgiveness as well. Instead of waiting the 20-25 year time period required in the other programs, public servants qualify for full loan forgiveness after working for 10 years in their job or making 120 qualified payments. Many people are unaware of this program that could potentially save them thousands of dollars. You may qualify for this program if you work in the follows sectors:
- Government organizations at any level (federal, state, local, or tribal)
- Not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code
- Other types of not-for-profit organizations that provide certain types of qualifying public services
- AmeriCorps and Peace Corps
You may still be wondering whether or not you qualify for public service loan forgiveness, so the following are a few of the jobs that are often asked about that do not qualify for the public service loan forgiveness:
- Labor unions
- Partisan political organizations
- For-profit organizations
- Non-profit organizations that are not tax-exempt under Section 501(c)(3) of the Internal Revenue Code and that do not provide a qualifying service
In order to be considered a full-time employee, you must either meet your employer’s definition of full-time or work 30 hours or more each week, whichever is greater. If you work two part-time jobs that put you over 30 hours a week, you are still considered by the government to be working full-time.
Not all federal loans are eligible to be forgiven under this program. Only loans through the William D. Ford Federal Direct Loan Program qualify. This means that loans such as the Federal Family Education Loan Program or Federal Perkins Loan Program do not qualify for forgiveness through public service. However, you do have the option to consolidate all of these loans into the William D. Ford Program so that they become eligible for forgiveness.
For more information, you should have a look at the federal government’s website about student loans.
Student Loan Forgiveness for Teachers
As a way to show appreciation to those who serve as teachers, and to encourage college students to enter into education, the government offers a student loan forgiveness for teachers program in certain circumstances. In this program, if you teach for five full and consecutive years in a qualifying school, you may be eligible to be forgiven for up to $17,500 on Direct Subsidized and Unsubsidized Loans and Federal Stafford Loans.
To qualify for these loans, you have to be working in specific types of schools. The district has to be one that qualifies for Title I funding. It also has to serve students where at least 30% of the kids qualify for services under Title I. Lastly, the school must be listed in the Annual Directory of Designated Low-Income Schools for Teacher Cancellation Benefits. People who work in different types of education agencies may also be eligible depending on the demographic of the students that they serve.
Every school that is run by the Bureau of Indian Education qualifies for cancellation whether or not the school is listed in the directory. Sometimes schools will be taken off the list, but if it was a qualifying school in your first year or subsequent years, then all the years remaining until you reach your five will still count to your forgiveness.
You also must be listed as a highly qualified teacher in order to receive this benefit. While this may sound a bit confusing, it really boils down to you having a college degree in education, scoring well on the standardized testing to receive your license, and meeting all the standards in the classroom that the state sets forth. You will have to register as a highly qualified teacher with the Department of Education.
To register for these benefits, you wait until the end of your five year teaching period. At the end of the five years, you will need to contact the head administrative officer at your school, or schools if you taught at more than one, and they will have to complete paperwork for you. You will then pass this paperwork on to your loan provider.
Total and Permanent Disability Discharge
The last loan forgiveness program that we’ll be discussing today is for those who have experienced total and permanent disability. People who qualify for this loan forgiveness program are exempt from paying back a Direct Loan, Perkins Loan, FFEL Loan, or the TEACH grant service obligations. For people who are wondering whether or not they are eligible for this program, you can show that you are permanently disabled in one of the following three ways.
First, if you are a veteran, you can submit your documentation to the United States Department of Veterans affairs showing that you are no longer able to serve due to your disability. Second, if you are receiving Social Security Disability Insurance or Supplemental Security Income, you can send your documentation in to show that you are disabled. Lastly, you may have your physician write a note for you showing that they believe you to be permanently disabled. If you are unable to apply to the forgiveness program yourself, you may have your representative apply for you on your behalf.
After you send in your application, the Department of Education will then review your material to determine whether or not you are eligible to receive this benefit. If, under the unfortunate circumstance that you are denied, you will then receive a notice telling you why your application was denied and what you can do to revise your materials to send in another application.
What This All Means
As tuition has been on the rise now for years, students have been taking on an increasingly large amount of student debt. This has led to many student having to move back in with their parents because they are starting their careers with an enormous amount of debt. Not everyone understands exactly what they are signing themselves up for when they agree to take on their loans.
These federal loan forgiveness programs are the first steps that the government is taking to make college education more affordable. They are recognizing that people who are serving the country in public service roles deserve to be rewarded in some way instead of punished by spending their entire salary on loans. As we continue onward with education reform, you can expect to see more of these types of programs along with efforts to reduce college tuition to make it more affordable for everyone.
All of this can be quite confusing, as there are many rules and caveats for each type of program. While this guide provided an in-depth overview of the different types of loan forgiveness programs that are out there right now, it did not cover every single rule that the government has set forth to qualify for each specific program.
If you find yourself a little bit confused about whether or not you qualify for a certain type of loan forgiveness, you need to get on the federal government’s website to read through the different rules. I would highly encourage you to make a phone call if the the website still doesn’t make complete sense to you. Pass this information along to anyone you know who is considering going to college or to people who are already in college.
It is important for everyone who is considering this as an option to educate themselves about the financial implications of going to school. While it is a decision that can impact your life significantly in many positive ways, it is also a decision that you could come to regret years down the road if you don’t do your homework.