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Student Debt Cancellation Programs: Pros and Cons

student debt cancellation

Student loans aim to help people in need to get their dream education. Through education, their living standards should supposedly be improved. Debt might help some borrowers, but it definitely hurts more than 40 million borrowers who struggle with the repayment. Borrowers lacking financial resources can neither repay their obligations nor live stress-free life. Luckily, there exist several options to eliminate student debt fully or partially. These programs are known as student debt cancellation or forgiveness opportunities. Borrowers can get rid of the debt if they agree to provide a worthy service or they face external conditions, like disability.

If you have federal loans, there is a high chance of accessing one of these cancellation programs. The government designed multiple forgiveness options to help struggling debtors. However, private loan borrowers are not as lucky as federal ones. 

Yet, this guide will introduce several options for federal and private loan borrowers to cancel their student loan debt. 

But Before…

Before you get fascinated with the possibility of student debt cancellation programs, you should be aware of two things. 

First, finding the right program for your needs is hard. Each program has extensive eligibility requirements. If you are not fully aware of the options, you can miss better programs to get rid of the debt. 

Second, cancellation programs come with their drawbacks. Some require too much effort; others are accessible to only a few borrowers. Keep in mind that sometimes repaying the debt effectively can be a more suitable option than trying to get rid of the debt. 

In all cases, if you think you can qualify for student debt cancellation, it is advisable to get expert help. Debt specialists, like those in Student Loans Resolved, develop sound debt management strategies by thoroughly analyzing borrowers’ finances. Combined with their years of experience and know-how, borrowers get the best possible solutions for their debt problems. 

Federal Student Debt Cancellation

student debt cancellation

As mentioned before, federal loan borrowers have access to more student loan cancellation programs. It is because the government cares more about the welfare of people than the profitability of its loan programs. Hence, they are ready to erase your debt if you qualify for the forgiveness programs. 

Usually, borrowers are granted forgiveness for their contributions. For example, serving in public service for years can eliminate your debt. However, in other cases, cancellation happens due to specific conditions, such as total and permanent disability, death, frauds of the schools, closed schools, etc. 

If you think you can qualify for any of these programs, make sure you read the requirements in detail in our blogs or on the official Student Aid website. 

1. Public Service Loan Forgiveness

Public Service Loan Forgiveness is one of the most popular student debt cancellation programs. It erases 100% of the remaining debt once you make 120 qualifying payments. However, during this repayment period, you should be working for a governmental or non-profit organization. Both part-time and full-time work is acceptable. 

Yet, you need to find more than one job to fulfill full-time hours in the latter case. Also, keep in mind that only Direct loans qualify for this program. Private loans, FFEL, or Perkins loans are excluded. 

Qualifying payments are those made on time and in full amount. Besides, you should enroll in an Income-driven repayment plan. Otherwise, your payments will not count. 

Payments do not need to be consecutive. Hence, you might need more than ten years to get qualified for this program. 

For application, you need to contact the loan servicer. The loan servicer for this student debt cancellation program is FedLoan Servicing. It is advisable not to wait till the completion of 120 payments to communicate with the loan servicer. Try to submit a PSLF form regularly to get your payments counted. In this way, you can avoid miscalculations and other possible issues.

Pros

Cancels 100% of debt – once you reach 120 payments, the rest is canceled. 

A relatively shorter period than repayment options – Income-driven repayment can take 20-25 years. With PSLF, it takes at least ten years. 

Forgiveness is not taxable- the forgiven debt amount is not taxable under Internal Revenue Codes. 

One hundred twenty repayments are affordable – Income-driven repayment is based on your earnings and family size, making it more affordable. 

Cons

Relatively longer period than other forgiveness options- you can find other student debt cancellation options which grant forgiveness per year of service or in five years. 

A loan servicer might not count your qualifying payments correctly- recently, there have been conflicts that loan servicer fails to count qualifying payments. 

Extensive eligibility conditions on the workplace, loan, etc. – we only mentioned a few conditions in this guide; check the detailed information. 

2. Teacher Loan Forgiveness

You can get rid of $17,500 or $5,000 debt in return for five years of service as a teacher with this program. Your service should be full-time and consecutive. Both Direct and FFEL loans qualify for this cancellation. 

A higher amount of benefit is access to highly qualified teachers in science, math fields or those who work with special education children. In general, borrowers need to have a bachelor’s degree and a valid license to practice. Additionally, at least one of your service years should be after the 1997-1998 academic year.

Borrowers can apply to Teacher Loan Forgiveness and Public Service Loan Forgiveness. However, you cannot apply at the same time. In other words, one year of service cannot qualify for both programs. 

Pros

Short service period- compared to PSLF, which requires a ten-year minimum, this program only requires five years of service. 

Accessible to more loans- Both Direct loans and FFEL loans qualify for cancellation.

Cons

Service should be consecutive- You should be serving for five successive years. Missing one year can make you ineligible. 

The benefit is not high- The program does not grant 100% cancellation, and you might qualify for only $5,000 forgiveness.

Narrow specialization- only those with teaching profession qualify, which excludes many borrowers.

3. Perkins Loan Cancellation

student debt cancellation

Till now, we missed opportunities for Perkins loans. Both Teacher and Public Service Loan Forgiveness programs ignore Perkins loans. However, there is a unique program for this type of student debt. 

Mostly, teachers qualify for Perkins Loan Cancellation. They should be working in schools that teach children of poor families. Besides teachers, military officers, librarians, firefighters, and other professionals can apply for this student debt cancellation option.

Perkins Cancellation is one of the most rewarding forgiveness programs. For each year of service, borrowers get some forgiveness. During the first two years of service, you will receive a 15% student debt cancellation. For the next two years, this percentage will increase to 20%. Finally, in your fifth year, you will receive 30% of debt cancellation. 

Pros

High benefit amount- you can get 100% debt cancellation in five years compared to TLF, which grants only up to $17,500 for the same service. 

Applies to more professions- besides teachers, many other professionals can qualify for this cancellation program. 

Cons

Only Perkins loans are eligible- other categories of student loans are excluded, which means many borrowers would not qualify for this program.

4. Borrowers’ Defense to Repayment

In recent years, there have been a lot of scandals about for-profit schools. Many students claimed that their schools engaged in fraudulent activities. For example, some school officials lied about the actual cost of loans; others used misleading advertising techniques to attract students to enrollment. 

Luckily, students are protected from such misfortune events. Borrowers’ Defense to Repayment program allows students to eliminate debt generated for their education if the school misled the borrower. However, only educational matters are covered. Lying about job replacement rates, student loans, quality of education, etc., can be the basis for such student debt cancellation programs.

Eligibility

This forgiveness program only covers Direct loans. If you have Perkins, FFEL, or private debt, you can check other options. The requirements for this program are not extensive. The critical point is proving that the school officials misled you. In other words, you should show that if the school officials did not deceive you, you would not enroll. 

Hence, it is advisable to develop clear and strong arguments. Besides, providing documents as evidence is important. For example, if the school official lied to you in an email, you can submit this email as proof. 

Borrowers’ Defense to Repayment can grant partial or complete forgiveness. However, currently, the Biden administration strongly supports this program. Therefore, they primarily grant full forgiveness. Even the Education Department granted full cancellation to those who received only partial discharge during the Trump Administration.

Pros

No service is required- you do not need to agree to provide service in return. Only prove your case. 

The Biden Administration supports the program- as a result, you can qualify easily and receive 100% cancellation.

Not a taxable program- like PSLF, the forgiven debt amount is not taxable under this program.

Cons

Only Direct loans are eligible- even if you were misled, you could not apply to this program if you do not have a Direct loan. 

Proving a case can be hard- you need to find evidence to prove your case. Otherwise, it is hard to qualify.

5. Income-Driven Repayment Plans

We previously mentioned that you could get forgiveness through PSLF, but you need to enroll in Income-driven repayment plans. If you do not qualify for PSLF, you can still take advantage of these repayment plans. Income-driven repayment is based on earning level and family size. Hence, the monthly loan payments will suit your budget. 

Even better, you can get forgiveness once the repayment period is done. Depending on the program you choose, you can repay the debt for 20 or 25 years. After this period, the remaining obligation is canceled. Hence, it is an excellent opportunity to get rid of the debt while making affordable payments. 

Another great feature of this repayment plan is that it has different types such as Income-contingent, Income-based, Revised Pay as You Earn, etc. Therefore, you can choose the plan that fits your needs the best. 

Discharge Options

Besides forgiveness programs, loan discharge options also exist as student debt cancellation opportunities. However, discharge happens only under specific conditions. Here we will briefly introduce some discharge programs, but make sure you get familiar with all details. 

Closed School Discharge

If your school closes while you are enrolled or soon after your withdrawal, you can qualify for Closed School Discharge. Usually, this program forgives your debt automatically if you do not apply for the program for three years. However, you can speed up the process by contacting your loan servicer. 

Not all students of a closed school qualify to be discharged. If students use the credits to transfer to a new school, they will not benefit from this student debt cancellation program.  

Pros

100% debt cancellation- you can get rid of the whole student debt.

Non-taxable income- no need to worry about taxes if the discharge is applied. 

Easy to qualify- you just need to satisfy a few conditions to qualify.

Cons

Only in the case of closed school- it is not up to a borrower to qualify. Only if your school closes can you apply.

The transfer is not acceptable- if you transfer credits to a new comparable program, you lose eligibility.

Disability Discharge

Another discharge option is granted if the borrower is totally and permanently disabled. This program applies to a variety of loans- FFEL, Direct, and Perkins loans. Borrowers need to provide documentation to prove disability to qualify. Documents from the Social Security Administration, Veteran Affairs, and physician are acceptable. 

You will be required to pass a three-year monitoring period if you get documents from SSA or a physician. In this case, if your conditions improve during three years and you gain employment capability, you might lose Disability discharge. As a result, your debt obligations will be restored.

Pros

100% debt discharge- you can get rid of the entire debt.

A wide variety of loans are covered- Direct, FFEL, and Perkins loans qualify for this program. 

Automatic qualification- even if you do not apply, the Education Department collects information about eligible borrowers from SSA and VA. 

Cons

Monitoring period- you might lose discharge even after you qualify for it during the monitoring period.

Bankruptcy Discharge

It is technically possible to qualify for bankruptcy discharge. However, it is not highly recommended. Its negative impacts on credit performance stay for up to 7-10 years. Hence, you will not be able to get a job, rent an apartment, or sign an insurance contract quickly during this period. Besides, it is hard to prove a bankruptcy case. Therefore, you should be desperate to become eligible. 

Pros

You can get rid of the debt entirely without paying a penny.

Cons

Adverse impact on credit history- it will hurt your credit score considerably.

Hard to qualify- even buying a coffee outside or using a smartphone can show that you are not eligible for loan bankruptcy

Other Discharge Options

You can also apply for this student debt cancellation option in case of death, false certification, or unpaid refund. Check out the official Student Aid website for more information.

Private Student Loan Cancellation

student debt cancellation

What about private loan relief? Unfortunately, neither of the previously mentioned programs are available to private loan borrowers. It is up to private lenders to provide such forgiveness opportunities, and in most cases, they do not offer any. Only a few lenders can allow death or disability discharge. Others require you to repay the debt no matter what.

However, some state forgiveness programs or options provided by specific organizations can include private loans. We will introduce one of these options in the subsequent section. You can also check your state’s programs. 

NHSC Loan Repayment Program

The National Health Service Corps provides a loan repayment program. This program aims to increase access to health professionals in underserved areas. As the professionals agree to provide service, they get student debt cancellation opportunities. This program is available to private and federal borrowers. 

In return for two years of service, you can receive up to $50,000 debt forgiveness. If you agree to serve part-time, your cancellation amount will only be $25,000. Besides, you can extend the contract after two years. Yet, there is no guarantee that the officials will agree to an extension.

Keep in mind that you need to be a licensed and trained professional. You can work in different fields- primary, dental care, behavioral or mental health. 

Final Words

There exist many programs that can free you from debt challenges. Most of these programs are available to federal borrowers. This guide introduced you to several options, such as Public Service Loan Forgiveness, Teacher Loan Forgiveness, Borrowers’ Defense to Repayment, etc. 

Yet, we discussed these options briefly. Hence, you will be better off reading our blogs for more detailed information on student debt cancellation. Besides, if you feel lost among these options, you can contact our debt specialists. We provide free consultation for those who want to get rid of the debt as soon as possible.