If you’re struggling with student loan debt, loan forgiveness can sound like a dream come true. While loan forgiveness programs do exist, they’re complicated, and not everyone is eligible.
Only a small number of people will actually qualify for student loan forgiveness. For example, 170,993 student loan borrowers applied for Public Service Loan Forgiveness (PSLF) as of August 2020. Of that number, 3,233 — just 1.9% of applicants — were eligible for loan discharge.
If you’re wondering how to get student loan forgiveness or if private student loan forgiveness is an option, here’s what you need to know.
Who qualifies for federal loan forgiveness?
When it comes to federal student loan forgiveness, there are two main programs: PSLF and Teacher Loan Forgiveness.
How to qualify for PSLF
If you meet the requirements for eligibility for PSLF, the savings can be significant. According to the Office of Federal Student Aid, the average balance discharged through the program is $73,054. However, the eligibility criteria is rigorous.
To qualify for PSLF, you must:
- Have federal Direct student loans
- Work full-time for a qualifying employer in public service, such as a non-profit organization or government agency, for at least 10 years
- Make 120 monthly payments under a qualifying repayment plan, including Income-Based Repayment, Income-Contingent Repayment, Pay As You Earn, or Revised Pay As You Earn
How to qualify for Teacher Loan Forgiveness
If you’re a teacher, you may be eligible for up to $17,500 in loan discharge through the federal Teacher Loan Forgiveness program.
To qualify, you must:
- Teach full-time for at least five full and consecutive years in a low-income school or educational service agency.
- Not have an outstanding loan balance on Direct Loans or FFEL Loans as of October 1, 1998
- Have loans that were taken out before the end of the five years of work required
Only teachers in certain subjects — such as science, mathematics, and special education — are eligible for the full $17,500. If you teach other subjects, the maximum amount of help you can get is $5,000.
Why is private student loan forgiveness unlikely to happen?
Unfortunately, private student loan forgiveness doesn’t exist. A student loan forgiveness program that included canceling private education loans likely won’t happen — not unless there is significant reform. Private loan forgiveness is considered nearly impossible for the following reasons:
- Massive student loan debt exists: According to The Institute for College Access and Success, over 1 million students use private student loans to pay for a portion of their education expenses every year, and there is over $10.3 billion in outstanding private student loans as of 2018. Any change the government made to cancel that amount would face steep opposition solely because of the high cost.
- It wouldn’t stop students from incurring debt in the future: Even if the government did pass laws to forgive private student loans, it doesn’t address the root cause of the problem. Current and future college students would likely still need to take out private loans because of the increasing cost of higher education. Until college costs are reduced, private student loans are a necessity for many.
- Private loans don’t come from the government: With federal student loans, the U.S. Department of Education is your lender. But with private loans, your lender may be a bank, credit union, or company. To forgive private student loans would mean affecting companies’ revenues and potentially put them out of business. While the government may put laws into place that restrict private student loans in the future, it’s unlikely that the government would be willing to shut down an entire industry.
Other ways to save money on student loan repayment
Since private student loan forgiveness isn’t an option and it can be difficult to qualify for federal loan forgiveness, it’s wise to explore other options for repaying your student loans. To pay off your loans and save money, consider the following ideas:
1. Sign up for automatic payments
Both federal and private student loan lenders typically offer interest rate discounts if you sign up for automatic payments, reducing your rate by 0.25%. While that interest rate adjustment is modest, it can help you save hundreds over the course of your repayment.
2. Enroll in an income-driven repayment plan
If you have federal student loans and can’t afford your current minimum payments, enroll in an income-driven repayment (IDR) plan. With an extended loan term and payments capped at a percentage of your discretionary income, you can qualify for a lower payment. And, at the end of your loan term, you can qualify for discharge if you still have a loan balance. However, you may have to pay taxes on the forgiven amount.
3. Pay more than the minimum each month
If you can afford it, pay a little extra each month toward your student loans. Making extra payments of even $50 or $25 per month can reduce how much interest accrues, allowing you to save a substantial amount of money.
For example, if you had $30,000 in student loans at 6% interest and a 10-year repayment term, your minimum monthly payment would be $333. If you increased your payment by $25 — paying $358 per month — you would pay off your loans nine months ahead of schedule and save $994.
Increase your payments to $383 — a $50 increase — and you’d pay off your debt 20 months early and save $1,805.
4. Make lump sum payments
If you get any unexpected windfalls, such as a bonus from work or a tax refund, make that money work harder for you by making a lump sum payment on your student loan debt. It will reduce how much interest builds on your loan balance.
For instance, let’s say you had $30,000 in student loans with a 10-year loan term and a 6% interest rate. If you received a $1,000 bonus from work after taxes and put that amount toward your loans, you’d eliminate your debt five months ahead of schedule and save $798.
5. Refinance your debt
Whether you have federal or private student loans, one of the most effective ways to save money is to refinance your debt. With student loan refinancing, you consolidate your loans with a private lender. Depending on your credit and other information, you may qualify for a lower interest rate, helping you save thousands of your repayment term.
If you had the same amount of debt mentioned above — $30,000 at 6% interest and a 10-year repayment term — and qualified for a refinancing loan at 4% interest and a 10-year term, you’d save over $3,500 in interest charges.
|Minimum Monthly Payment
|Total Savings: $3,519
If you want to refinance your loans, use Purefy’s Compare Rates tool before submitting a loan application. You’ll fill out one simple form and get quotes from top refinancing lenders, helping you find the best rates.