Student loans are some of the most challenging obstacles to overcome as a young professional. It’s hard to get on your feet with your career of choice with tens of thousands – or even hundreds of thousands – of debt hanging over your head.
College prices are rising faster than inflation, and are far higher than an entry-level salary can cover. Young workers don’t see the light at the end of the tunnel for college debt, and many envision a world where they’re still paying their debt well into their 50’s.
Thankfully, some private and public programs can give graduates a bit of assistance. There are a few income-based and occupation-based student loan forgiveness plans that can help reduce your payments and forgive a portion of your debt while you’re trying to get on your feet.
There are a few different income-based repayment plans that forgive a bit of your student debt while making your monthly payments a lot easier on your wallet.
These programs give borrowers a chance to establish themselves without the burden of unbearable student loans.
While these programs aren’t complete forgiveness of your loan amount, they will give you much more breathing room than you probably have right now. At a certain point, most of these programs also forgive a certain amount of your student debt.
Income-contingent repayment doesn’t forgive the entirety of your student loan amount, but it allows you to make more reasonable payments about your income.
A lot of students find that their wages don’t match the amount they owe in student loans. If you’ve chosen an industry that doesn’t pay well, you could find yourself wondering if going to college is something you’ll be paying for the rest of your life.
Income-contingent repayment reduces the amount you have to pay every month and adjusts it based on your salary, necessary expenses, and family size. The government created this program as a way to help those who are working in low-wage – yet important – jobs.
The loan will adjust every year to account for any changes in wages or family you might have experienced.
Anyone with student loan debt can apply for the income-contingent repayment forgiveness program, but only if you have loans from the US Department of Education.
If you received multiple federally-guaranteed loans from private banks, you have to consolidate your debt first before you are able to receive the income-contingent repayment benefit.
If after 25 years you still haven’t repaid the balance of your loan, the government will waive the rest. Keep in mind that whatever amount you leave after 25 years will be taxable income. You’ll have to pay income tax on this student loan forgiveness, but you’ll likely still save a considerable amount of money.
Income-Based Repayment (IBR)
The income-based repayment plan gives more graduates the option of lowering their monthly payments than the income-contingent repayment plan. More loan types fall under this umbrella, so there’s a greater chance you’ll qualify for this type of forgiveness.
Your payments will cap at either 10 or 15% of your income, with similar contingencies as the Income-contingent repayment listed above. The government will base this on your “discretionary income;” which is your after-tax income that takes necessary expenditures into account.
Like the income-contingent repayment plan, the lender will forgive the remainder of your loan balance after 20 or 25 years. Again, you’ll have to pay income tax on any amount that was forgiven, but you’ll still likely save money here.
You must show proper documentation and make appropriate updates to receive this loan. If your income rises, you must let them know so they can make the proper adjustments. If you fail to include this information, you might stay on the hook for the bulk of your payments.
Pay as You Earn (PAYE)
Pay as you earn is another federal student loan forgiveness program that gives former students a way to decrease the amount they pay each month. Like the above-listed plans, PAYE allows students to pay only 10% of their discretionary income on their student loans.
After 20 years of consecutive payments, you’ll receive forgiveness on the total loan amount. Again, the government views this forgiveness as taxable income, so you’ll have to pay income tax after the 20 year period is up.
Job-Specific Loan Forgiveness
Those who work in specific fields get the most student loan forgiveness out there. This is usually because their jobs are necessary, and school is often far more expensive than students end up making.
Nurses, for instance, pay tens of thousands of dollars getting their degree and find that they won’t make that money back for a long time. These high barriers can dissuade people from entering necessary fields because their loan debt will be higher than their salary.
Thankfully, these student loan forgiveness plans take this element into account.
Public Service Loan Forgiveness
The Public Service Loan Forgiveness plan is for those who chose to take jobs working in public service. If you pay your loan debt on time for 120 payments in a row, the government will forgive the remaining loan amount.
This program is geared towards people who work full-time in a government agency. This can be local, state, or federal, but working at a religious nonprofit means, you won’t qualify.
These 120 consecutive payments need to come under one of the qualifying plans as well. You can choose the income-related repayment plans above, and receive 100% loan forgiveness before the traditional loan forgiveness period hits.
Federal Perkins Loan Cancellation
If you took out a Federal Perkins Loan with your school, you might be eligible for the Federal Perkins Loan cancellation program. This program is for graduates who entered high-need fields and is especially popular with those who go into education.
Most educational fields qualify for the Federal Perkins Loan cancellation program. If you work as a teacher, nurse, firefighter, police officer, or other high-need fields, you will likely qualify to have the government and your school forgive a percentage of your loan amount.
We recommend speaking with a loan advisor to find out if the Federal Perkins Loan cancellation program is an option for you. If it is, you’ll receive some forgiveness on your loan each year you work in a “critical shortage” field.
What do Teachers Qualify For?
Teachers are the backbone of educating our children. Without them, many of us wouldn’t be able to contribute to society in the way we currently do. Unfortunately, the reality of life is that some of the most necessary fields don’t make as much money as they should.
On the other hand, teachers need to spend a lot of money to get their degrees. Thankfully, the government makes it easy for teachers to qualify for loan forgiveness programs. As a teacher, you’ll likely qualify for both of the loan mentioned above forgiveness programs.
You can also receive repayment assistance through the Teacher Forgiveness Program. This only applies to teachers who work at specific schools, though if you work at a public school, you probably don’t have to worry. You’ll need to teach for at least five years before you can receive forgiveness.
The amount the government forgives depends on where you teach, what grade you teach, and what subject you teach.
You may also receive repayment assistance from your state as a teacher. Talk to an advisor to see which options are available for teachers in your state.
What do Nurses Qualify For?
Nurses qualify for the same income-based and occupation-based student loan forgiveness that teachers do. Like teachers, they have a few supplemental options for loan forgiveness that might work better for their payment schedule.
The Nurse Corps Loan Repayment is for nurses who work in lower-income communities, providing medical help for those who wouldn’t otherwise have any. These jobs usually don’t pay very well, but the Nurse Corps Loan Repayment program can help them a bit with their bills.
After working as a nurse in a qualified area for two years, the program pays 60% of your student loans for you. After another year, you could receive another 25% of loan assistance.
Like teachers, a lot of nurses have the option of choosing a state-sponsored loan repayment program as well. These programs cover a portion of your payment, depending on where you work and your exact position.
The Importance of Loan Forgiveness
It used to be the case that you could develop a promising professional career without ever thinking of going to college. While this is still true for some industries, most employers require a college degree before they’ll even consider your resume.
College is becoming a necessary step in almost everyone’s life. In essence, society requires students to saddle themselves with years worth of debt before they ever get a taste of what the professional world is like. If their parents can’t contribute to schooling, the student has to take out even more loans.
Loan forgiveness programs open the door to a future where students won’t have to pay so much money to attend college. The above programs and others like them give many students an independent path forward.