Understanding loan forgiveness, cancellation and discharge
As you research student loan forgiveness, you’ll come across a few commonly used terms: forgiveness, cancellation and discharge. Here’s what each means when it comes to your student debt.
Forgiveness erases part of a loan; cancellation can erase the whole thing.
- Forgiveness, generally speaking, is only for individuals who work in a certain industry or profession for a period of time. For example, working for an approved 501(c)(3) nonprofit can qualify you for the Public Service Student Loan Forgiveness (PSLF) Program. With student loan forgiveness, only a percentage of your loan is paid off, though this may be enough to wipe out your remaining balance.
- Cancellation is very similar to forgiveness in that it also applies to people in certain professions or industries, such as teachers and those in public service work. However, federal programs that use the term “cancellation” can erase up to 100% of your debt from a given loan.
- Discharges are applicable when other circumstances impact your requirements for paying back your loan. Most of the eligibility requirements are out of your control — these include permanent disability and the death of the student or borrower.
All three options require applications, documentation and proving that you’re worthy of financial help. Some may require that you go to court to prove your point, while others are more straightforward.
It’s also important to remember that nearly all student loan relief programs are only good for federal loans, not private loans. Some private loan lenders do offer discharge options for extreme circumstances, though.
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Student loan repayment programs
Not everyone will qualify for student loan forgiveness or cancellation, but many will be eligible for financial assistance as they pay off their school debts. If loan forgiveness doesn’t work out, try one of these solutions to help keep your payments manageable.
Income-driven repayment
There are four available programs , and if you still have a remaining loan balance at the end of your repayment plan (typically 20 to 25 years), it will be forgiven. These programs include:
- Revised Pay As You Earn Plan (REPAYE Plan): As a general rule, you’ll pay 10% of your discretionary income.
- Pay As You Earn Plan (PAYE Plan): You pay 10% of your discretionary income but not more than the 10-year standard repayment plan amount.
- Income-Based Repayment Plan (IBR Plan): In general, you pay 10% of your discretionary income but never more than the 10-year standard repayment plan amount if you are a new borrower after July 1, 2014. For loans with origination dates older than that, you pay 15% of your income.
- Income-Contingent Repayment Plan (ICR Plan): You pay the lesser of 20% of your discretionary income or what you would pay on a repayment plan with a fixed payment for 12 years, adjusted according to your income.
These plans are recommended if you want to pursue a forgiveness program since they ease the financial burden and maximize the amount of debt that can be forgiven in the long run.
Employer repayment contributions
Under current provisions, employers can repay up to $5,250 per year per employee through Dec. 31, 2025. “What's great is that the employer can deduct the payments as a business expense,” she said. “My advice is to ask your current employer or any employer with which you are considering employment whether they offer any form of student loan assistance.”
Student loan forgiveness programs
Many student loan forgiveness programs are available for certain career paths or industries. Some of these programs have extremely strict requirements, so it’s important you understand if you meet eligibility standards for the requested period.
Public service loan forgiveness
“While 120 qualifying payments may seem like a lot, there have been measures taken by the Trump and Biden administration which will help qualify some payments,” Rubin said. “For example, any time spent in COVID-19 student loan pandemic relief will count as a qualifying payment.”
To qualify, you must work full-time for an eligible employer. This program isn’t based on what you do for this employer, but instead on who your employer is. For example, serving full-time in the AmeriCorps or Peace Corps qualifies you for the PSLF Program.
While you can move employers or locations during these 10 years or even take a break from a PSLF company and then come back, it’s good to check with your loan servicer when switching employers to make sure you’re still eligible.
Loan forgiveness for teachers
Eligible math or science teachers can have up to $17,500 of their student loan debt forgiven, while other certified teachers with a bachelor’s degree can qualify for up to $5,000 of debt forgiveness.
Loan forgiveness for nurses
Two popular programs are the Nurse Corps Loan Repayment Program (LRP), which pays up to 85% of an eligible nurse’s student loan debt, and the National Health Service Corps Loan Repayment Program (NHSC LRP), which pays up to $50,000 towards student loans. Nurses are also eligible to take part in the PSLF Program.
Military loan forgiveness and assistance
This is probably one of the easiest types of forgiveness to qualify for because there’s little in terms of eligibility requirements beyond enlisting. Of course, it’s not a solution for everyone, and there are term requirements for each type of loan. For example, to qualify for repayment, you must enlist in the National Guard for six years, the Navy for three years or the Army for six years.
If you serve in an area that’s considered an immediate danger, you may be eligible to receive 100% forgiveness. This is also an option for those who have been discharged due to a disability. Military members are eligible to utilize the PSLF program as well.
Student loan cancellation programs
Whereas student loan forgiveness is usually partial, student loan cancellation can be comprehensive, akin to 100% forgiveness. Before you get excited, know that there are not very many of these programs available, and they’re pretty hard to qualify for.
One of the most common student loan cancellation programs is Perkins Loan cancellation. This program is for people who have volunteered or worked for a certain period of time in an eligible field, including:
- Teachers of low-income school districts working in understaffed positions or special education (like bilingual studies or mathematics)
- Firefighters
- Law enforcement
- Public defenders
Perkins Loan cancellations are also for people with certain types of financial issues, like bankruptcy or a service-connected disability.
Student loan discharge programs
You may also be able to receive a total payoff of your student loans through a student loan discharge program. These programs are reserved for individuals dealing with unique and difficult situations, like the following:
- Closed school
- Disability
- Death
- Some bankruptcies
If you think you qualify for 100% of your remaining debt to be discharged, be sure to check the eligibility requirements for each discharge program and tell your lender. Some private student loan lenders will also grant a discharge if there is documentation of a disability or death.
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FAQ
How can I apply for student loan forgiveness?
To apply for student loan forgiveness, determine if you meet the eligibility criteria. Then, submit the necessary documentation and a completed application form to the loan servicer or program administrator. You can find many student loan forgiveness options on the Federal Student Aid website.
Make sure you continue making loan payments until you have been approved for the program.
Will I be taxed on forgiven student loan debt?
In some cases, forgiven student loan debt will be considered taxable income by the IRS. In other instances, the forgiven amount is tax-exempt for some programs, like the PSLF.
Will consolidating my loans affect forgiveness eligibility?
Consolidating your loans can potentially impact your eligibility for certain student loan forgiveness programs. If you consolidate federal student loans through a Direct Consolidation Loan, it creates a new loan, and the terms of forgiveness programs may reset. Additionally, if you refinance to a private lender, they may not offer the same forgiveness options.
Bottom line
Student loan forgiveness programs can have many hoops to jump through to qualify, but they can also help relieve your student debt burden. Before applying for any of these programs, read the eligibility requirements. You’ll likely need to work in a certain field or be a part of the military. When in doubt, your lender should be able to help you understand if you’re eligible and what your next steps should be.
Article sources
- Education Data Initiative, " Student Loan Debt Statistics ." Accessed May 22, 2023.
- Federal Student Aid, “ Public Service Loan Forgiveness (PSLF) .” Accessed May 23, 2023.
- Federal Student Aid, “ If your federal student loan payments are high compared to your income, you may want to repay your loans under an income-driven repayment plan. ” Accessed May 23, 2023.
- Federal Student Aid, “ Teacher Loan Forgiveness .” Accessed May 23, 2023.
- Federal Student Aid, “ 4 Loan Forgiveness Programs for Teachers .” Accessed May 23, 2023.
- Health Resources and Services Administration, “ Apply to the Nurse Corps Loan Repayment Program .” Accessed May 23, 2023.
- Health Resources and Services Administration, “ National Health Service Corps Loan Repayment Program .” Accessed May 23, 2023.
- Federal Student Aid, “ Public Service Loan Forgiveness FAQ .” Accessed May 23, 2023.
- Federal Student Aid, “ Federal Perkins Loan Program - Cancellation .” Accessed June 12, 2023.
- Federal Student Aid, “ You may be eligible to have all or a portion of your Federal Perkins Loan canceled (based on your employment or volunteer service) or discharged (under certain conditions). ” Accessed June 12, 2023.
- Federal Student Aid, “ Student Loan Forgiveness .” Accessed June 12, 2023.
