Students with federal loans have access to excellent opportunities to get rid of the debt. Forgiveness and discharge programs, repayment plans, and consolidation possibilities are among the most preferred student loan solutions. In general, forgiveness and discharge options help borrowers to eliminate the debt fully or partially. However, different from discharge, a forgiveness program requires a service or commitment. Discharge happens only in exceptional cases – external factors that cannot be managed by a borrower. Next, repayment plans aim to make the debt payments more affordable, while the consolidation is all about effective debt management and lower costs. In this guide, we aim to help debtors to choose the most suitable loan solution by discussing different types of federal aid programs.
Public Service Loan Forgiveness
One of the most prominent and beneficial federal aid plans is the Public Service Loan Forgiveness (PSLF). As its name suggests, this program aims to facilitate borrowers working in federal, local, state or even non-profit organizations. If borrowers apply for this program, they become eligible for cancellation of the debt after 120 successful debt payments. After this period – 10 years, the rest of the debt will be discharged. Borrowers need to have served full time in a qualifying organization to be eligible for the forgiveness opportunity. Another benefit of this program is that the forgiven amount is not taxable. In general, this financial aid plan is an excellent opportunity for public sector workers.
Teacher Loan Forgiveness
Very similar to the Public Service Forgiveness program is Teacher Loan Forgiveness, but it offers financial aid to a narrower group of public servants- teachers. If a teacher serves five consecutive years, he/she can qualify for forgiveness. The forgiven amount depends on the field of the work. In short, teachers in math, science or special education fields can qualify for $17,500 debt forgiveness, while others can be eligible for a maximum $5,000 assistance. However, all qualifying teachers need to work in a low-income school as the program aims to help understaffed institutions serving poor communities.
Perkins Loan Cancellation
Perkins Loan Cancellation program is also one of the student loan solutions for teachers. This federal aid plan grants up to 100% cancellation to teachers with eligible employment. Faculty in a school serving low-income students, special education teachers and teachers in math, science, or foreign language can qualify for this benefit. Besides, other public servants like firefighters, nurses, public defenders, librarians, or military service members with Perkins Loans can be eligible for this program.
One exciting feature of this cancellation is that it erases some part of the debt for each year of service. For instance, for the first and second year of service, the applicant receives a 15% cancellation. For the following two years, this percentage increases to 20% and becomes 30% in the fifth year.
Closed School Discharge
There exist some schools that close campuses due to financial challenges or because of losing the accreditation. In this case, students become victims as they cannot graduate to get a degree or their degrees become unreliable due to the lost reputation of the school. Fortunately, the Department of Education cares about these students and restores justice by providing discharging student loan solutions.
If the borrowers were enrolled in programs when the school closed or they withdrew up to 120 days before, they will be eligible for this discharge plan. Discharge can involve 100% cancellation for direct, FFEL and Perkins Loans.
Total and Permanent Disability
Disabled people can also eliminate their educational loans. However, the main criteria in this discharge program are getting a reliable TPD certification from one of the three sources- the U.S Department of Veterans Affairs, the Social Security Administration or a physician. Once the disability is proved, the borrower’s debt will be cancelled. If a borrower is not able to apply for Permanent Disability Discharge, he/she can assign a representative to manage financial aid. In some cases, the Department of Education collects information about qualifying borrowers and notify them about the discharge possibility. Lastly, if a disabled person gets better and gains eligibility for employment status, then the discharge can be cancelled.
Discharge Due to Death
If a borrower dies, the loan is discharged. In the case of PLUS loans, the death of parents or the student makes this discharge possible. However, first, the family member or a representative should provide necessary documents such as a death certificate and its copy to the loan servicer.
If a borrower is bankrupt, the debt can be discharged. Though it is one of the student loan solutions, bankruptcy is usually not preferred. As student loan bankruptcy leaves a substantial negative impact on credit history, the borrower can struggle to get a new car, rent an apartment, buy luxury goods, use custom remodeling services, receive insurance, or access a new line of credit for as long as ten years. Besides, proving bankruptcy is a complex process. Simple life activities such as owning a phone or drinking a cup of tea outside can be a barrier to this process. Lastly, bankruptcy has different types. In some cases, the debt is not discharged, but a new repayment plan is organized so that the borrower can afford the payment. Therefore, this solution should be the last resort.
Borrowers’ Defense to Repayment
One of the innovative student loan solutions is Borrowers’ Defense to Repayment program because it allows enormous flexibility. There are no exact eligibility requirements for this program; instead, it helps any student that faces unlawful treatment or misconduct of an institution. Some common causes for such discharge opportunities involve misrepresentation of enrollment advisors, false job replacement rates, lies of the recruiters about credit transfers and the real cost of the education to attract students. Except for personal cases, like harassment, students can raise an issue for Borrower’s Defense to Repayment simply by proving the mismanagement. Hence, it is necessary to upload any documents that show unlawful and unethical acts, such as emails, brochures, etc.
If complete student loan solutions that involve full cancellation or discharge do not work for a borrower, another opportunity can be applying to repayment options. There exist different types of repayment plans with varying interest rates, monthly payments, durations and requirements. However, all of them aim to help borrowers to meet their obligations and successfully pay out the debt. Some repayment plans are Graduated, Extended, Standard, Income-Based, Pay as You Earn, etc.
Another member of innovative student loan solutions is debt consolidation which is different from other programs mentioned above. Federal aid like forgiveness or discharge help to cancel the debt while repayment plans make the debt payment more affordable. Consolidation has a unique structure, and it involves combining different loans into one loan. In this way, borrowers can better manage their various payments as they will make only one payment per month. Besides, new loans can have lower interest rates which mean the cost of debt per month will decrease.
All of the mentioned student loan solutions are available to borrowers with federal loans. However, while selecting one to apply, debtors should be careful. Sometimes getting the benefit of one program can be a barrier to exploit other opportunities. Hence, one should choose the most beneficial program that he/she qualifies. Before making a decision, the debtors should collect more information about each program. Besides, getting expert help will be a wise decision because debt specialists have more expertise and can guide the debtor in all stages of application.