More than 40 million Americans collectively owe more than $1.7 trillion in student loan debt. And while plenty of federal student loan borrowers have been enjoying the student loan payment pause that’s been in effect since 2020, payments will resume again in October.
So no doubt, many borrowers are looking for ways to get their loans forgiven, canceled, or discharged — a move that could, depending on a few factors, mean you may not have to pay back some or all of your loans.
In June, the Supreme Court blocked President Joe Biden’s student loan forgiveness plan, which would have canceled up to $20,000 in loans for individual borrowers. But while the administration’s plan may have been one of the most comprehensive to cancel student loan debt, it is thankfully far from the only option borrowers have for forgiveness.
“The great thing about forgiveness is it gives people hope who have otherwise unaffordable balances,” says Michael Lux, an attorney and founder of the Student Loan Sherpa, a blog that offers advice on student loans.
That said, forgiveness plans can be complicated to take advantage of, Lux adds. “One of the big challenges is just navigating it. There are a lot of different forgiveness programs,” he says.
Here’s your guide to student loan forgiveness: what it is, who might qualify, how to get your student loans forgiven, and other options to lower your student loan payments.
What is student loan forgiveness?
Student loan forgiveness is one way that borrowers can have their federal student loans forgiven, canceled, or discharged, according to the US Department of Education.
This means that depending on your repayment program, you may not have to pay back some or all of your loans. (Note that private student loan borrowers are typically not eligible for forgiveness; if you have private student loans and want to lower your payments, you may want to consider refinancing. You can
see some of the best student loan refinance rates here.)
There are a number of ways that borrowers can qualify for student loan forgiveness. Most commonly, individuals will be eligible for student loan forgiveness because of their profession — but you can also apply if you have a disability, your school has closed or misled you or you are a member of the military.
What are student loan forgiveness programs?
The most common way that borrowers can qualify for student loan forgiveness is through Public Service Loan Forgiveness, which is typically offered to individuals who work for the government or a nonprofit.
Borrowers must pay a total of 120 qualified monthly payments under an accepted repayment plan while they are working for an eligible employer, according to the Department of Education.
In order to qualify for Public Service Loan Forgiveness (PSLF), you must work for a federal, state, or tribal government or a nonprofit organization. You can also qualify by working for a nonprofit organization that dedicates its time to public service. The professions that qualify under this include:
- Emergency management
- Civilian service to the military
- Military service
- Public safety
- Law enforcement
- Public interest law
- Early childhood education
- Public service for individuals with disabilities
- Public health
- Public education
- Public library services
- School library services
- Public service to the elderly
- Other school-based services
Income-driven repayment programs are another common way borrowers have their debt forgiven. Using these programs, borrowers pay down their balance over a number of years by making payments commensurate with their income. After that time is up, some or all of their balance may be forgiven.
There are four different types of income-driven repayment plans including:
- Saving on a Valuable Education (SAVE) Plan: Normally 10% of your discretionary income. The repayment period lasts 20 years for undergraduate loans and 25 years for graduate or professional school loans.
- Pay As You Earn (PAYE) Repayment Plan: Normally 10% of your discretionary income, but never more than the 10-year standard repayment plan amount. The repayment plan lasts for 20 years.
- Income-Based Repayment (IBR) Plan: Normally 10% of your discretionary income if you’re a new borrower on or after July 1, 2014. But you will pay 15% of your discretionary income if you are not a new borrower. However you will never pay more than the 10-year standard repayment plan amount. The repayment plans are 20 years for new borrowers and 25 years for already existing borrowers.
- Income Contingent Repayment (ICR) Plan: You will pay whatever is the lessor: 20% of your discretionary income or what you would pay on a payment plan with a fixed payment over 12 years, adjusted for your income. The repayment period lasts 25 years.
Any borrower with eligible federal student loans can apply for the SAVE or ICR plans. ICR plans are the only income-driven repayment plan available to borrowers of a Parent Plus Loan, which are student loans specifically for parents.
To qualify for PAYE or IBR plans, your payment under these plans must be less than what you would pay under the standard repayment plan with a repayment period of 10 years.
States also offer their own programs for forgiveness, often based on the borrower’s profession. For example, a state that needs healthcare workers may offer loan forgiveness to nurses who want to come live and work there. Borrowers interested in receiving loan forgiveness should go on their state’s website to see if they are eligible.
“Most of them focus on people who are working in high-need areas,” Betsy Mayotte, president and founder of the Institute of Student Loan Advisors, told MarketWatch Picks. “They have a need for nurses, or dentists, in a certain county in a particular state.”
The Institute of Student Loan Advisors, a non-profit organization offering free student loan advice to borrowers, provides a comprehensive list of student loan forgiveness programs for borrowers. The Department of Education’s website also provides a comprehensive guide for loan forgiveness.
What is SAVE? How does SAVE compare to REPAYE, and how to apply for SAVE?
The Saving on a Valuable Education (SAVE) plan recently opened for enrollment. The plan, which modified and replaced the REPAYE plan, is an income-driven repayment that calculates payments based on a borrower’s income and family size. The administration estimates that the SAVE plan will cut some borrower’s monthly payments down to zero, and will save others around $1,000 per year.
Borrowers with federal student loans who were using the REPAYE plan will immediately get the benefits of SAVE. The SAVE plan reduces payments on undergraduate loans to 5% of discretionary income, compared with 10% on the REPAYE plan.
Borrowers who are interested in applying for the SAVE plan can submit an application by following instructions on the Department of Education’s website.
How can I have my student loans forgiven?
There are a number of ways borrowers can have their student loan debt forgiven.
One of the most common ways to have your loans forgiven is through your job. You can qualify for forgiveness if you work in any of the following professions:
- If you are a government employee. You can apply for Public Service Loan Forgiveness if you work for a federal, state, or tribal government.
- If you are a teacher. Teachers can apply for Public Service Loan Forgiveness or Teacher Loan Forgiveness.
- If you work for a nonprofit. Employees of qualified nonprofit organizations can apply for forgiveness if they have a Direct Loan.
- If you’re a medical professional like a nurse or a doctor. Medical professionals can apply for forgiveness if they work for a qualified nonprofit or have a Direct Loan.
If you don’t work in any of these professions, you still could be eligible for loan forgiveness. You may be eligible for forgiveness:
- If you’re using an income-driven repayment plan. Borrowers using these plans typically have their loans forgiven after a certain amount of time.
- If you have a disability. You may qualify for total and permanent disability discharge if you have a Direct Loan, Perkins Loan, or a Federal Family Education Loan Program loan.
- If your school has closed. You may be eligible for forgiveness if your school has closed while you are enrolled, or soon after you have withdrawn.
- If your school has misled you. If you took out a loan to pay for a school that violated certain laws or engaged in other misconduct you could be eligible for forgiveness.
- If you are a victim of forgery. You can apply for this forgiveness if you believe you were the victim of a fraudulent loan discharge.
- If the borrower has died. Your loan will be discharged if the borrower or the student for whom the loans were taken out dies.
- If you’re a parent. Parent borrowers can apply for forgiveness if they become disabled or file for bankruptcy.
- If you’ve declared bankruptcy. Eligible borrowers must file an adversary proceeding, which finds that repaying student loans would pose a financial hardship.
- If you’re a federal Perkins Loan borrower. Your loans will be canceled once you have completed eligible employment or volunteer service.
How does student loan forgiveness work if I have a Pell Grant?
In 2022, the White House announced that it would give “up to $20,000 in loan relief to borrowers with loans held by the Department of Education whose individual income is less than $125,000 ($250,000 for married couples) and who received a Pell Grant.” You can visit the the Federal Student Aid website to apply.
What are the benefits and drawbacks of student loan forgiveness?
Student loan forgiveness programs could help borrowers free up money to spend elsewhere.
Student loan debt also prevents adults from saving for retirement and other financial goals. A recent survey from Bankrate found that 60% of US adults with student loans have put off making financial decisions like getting married or buying a home because of their debt.
Loan forgiveness programs also allow students to follow career paths they’re passionate about but may not pay as well, Mayotte told MarketWatch Picks. For example, an attorney coming out of law school with debt may be less encouraged to take a job as a public defender over a position at a private law firm where they will make more money.
“One of the things these programs all have in common is they’re recognizing there may be a borrower or a citizen who has a passion for a certain career, but their student loan debt doesn’t make it comfortable enough to practice in that career,” Mayotte says. “It allows people the freedom to serve their community without the drawback of being forever saddled with high debt.”
When considering forgiveness, be wary of scammers, who may try to trick you into paying money to have your loans forgiven. There’s never a fee to qualify for any federal student loan forgiveness program, Mayotte says.
Plus there are some nuances around student loan forgiveness. Here is one:
The American Rescue Plan Act of 2021 changed how student loan forgiveness is treated for discharges
“The American Rescue Plan Act of 2021 modified the treatment of student loan forgiveness for discharges in 2021 through 2025. Generally, if you are responsible for making loan payments, and the loan is canceled or repaid by someone else, you must include the amount that was canceled or paid on your behalf in your gross income for tax purposes,” writes the IRS.
That said, there are certain situations where you might be able to exclude the canceled amount from your gross income. These include if the loan was for postsecondary educational expenses, a private education loan, a loan from an educational organization described in section 170(b)(1)(A)(ii) or a loan from an organization exempt from tax under section 501(a) to refinance a student loan, according to the IRS.
What are some alternative ways to manage student debt?
Borrowers should also consider alternative methods for managing their student loans, especially as repayment restarts.
If you don’t qualify for student loan forgiveness, there are some repayment plans that can help decrease your loan balance over time. The types of repayment plans that are available include:
- Standard repayment plan: Payments are a fixed amount that ensures your loans will be paid off within 10 years.
- Graduated repayment plan: Payments start off low and then increase every two years to an amount that will ensure your loans are paid off in 10 years.
- Extended repayment plan: This plan ensures your payments are paid off within 25 years, payments are fixed or graduated.
- Income-driven repayment plans: The SAVE, PAYE, IBR and ICR plans fall under income-driven repayment, which bases your monthly payment on your income and family size.
Employers can also provide options to help borrowers repay their loans. Some employers offer benefits like student loan repayment plans or tuition reimbursement. Companies may also provide access to a financial adviser who can advise on repayment options.
If you have private loans, you may want to consider refinancing to get a lower monthly payment. The Department of Education also has resources that can help borrowers find an affordable repayment plan.
It’s important to figure out how your regular loan payment will fit into your overall budget, Mayotte says, especially for those who may not have been making payments during the pause.
“Eggs and lettuce and housing cost a lot more than they did three-and-a-half years ago,” Mayotte says. “What might have been a comfortable payment before might not be anymore.”
Efforts by the Biden administration to help borrowers with student loans
The Biden administration has been open to, and pushing for, some student loan reform, experts told MarketWatch Picks. Early in the COVID-19 pandemic, the federal government paused federal student loan payments and dropped all interest rates to 0%; the Biden administration repeatedly extended the payment pause. This meant that borrowers got a break on paying student loans.
But now, after the Biden administration extended that pause eight times, student loans are expected to begin accruing interest on September 1 — and payments will begin in October.
Ever since the Supreme Court struck down the administration’s student loan forgiveness plan in June, which would have canceled up to $400 billion in student loans, the administration has been looking for ways to ease the load on borrowers.