The Complete Guide to Student Loan Forgiveness, Discharge and Cancellation

Introduction to Student Loan Forgiveness Programs

Student loan forgiveness can vary widely in both timing and the amount forgiven depending on the individual program. The good news is even with some forgiveness programs taking time; there are often ways to lower your student loan payment in less than 60 days. With so many options available, finding the right one for your specific needs can seem like a daunting task at first! This article will explain each of these programs in detail so you can see the differences and how they stack up to one another.

Lowering Your Monthly Student Loan Payments

While forgiveness is often the goal of many student loan borrowers, many are struggling with payments today while looking for the right program. Luckily, many borrowers today are able to significantly lower their payments while working toward future loan forgiveness.

Income-Driven Repayment Plans similar to (IBR, PAYE, and REPAYE), have the benefit of capping your monthly loan payments at 10-15% of your discretionary income during the time frame required before your remaining loan balances can be forgiven. These plans are an excellent way to provide both instant payment relief and a long-term solution to your student loan debts.

Common Student Loan Forgiveness Programs

Here are the most common student loan forgiveness programs and their timing:

  • Income-Driven Repayment Plans under the Ford Direct Loan Program: 20-25 year forgiveness.
  • Teacher Loan Forgiveness and Perkins Loan Cancellation Program for Teachers: 1-5 year forgiveness.
  • Public Service Loan Forgiveness: 10-year forgiveness.
  • Total Permanent Disability Discharge: Immediate discharge.
  • Military College Loan Repayment Program (CLRP): 4-6 year forgiveness.

Defaulted Private Student Loans

Private student loans? Here are some alternatives available to you:

Work directly with your lender – The first step should be to speak directly with you lender about options that will lower your monthly payments. In order to keep you making monthly payments, your lender may have a strong incentive to work with you regarding repayment options.

Deferment or Forbearance options – Private lenders frequently offer deferment and/or forbearance options to assist those customers struggling with their payments. Both options allow the borrower to temporarily postpone their loan payments for a certain amount of time. If you’re currently struggling with repayment due to employment and/or income issues, forbearance is likely your best option. However, keep in mind that during this time interest will still accrue.

Refinancing private student loans – Another option for those with good credit is to refinance your student loans. This option may allow you to significantly lower your interest rate, making the monthly payments much easier to make.

Understanding Student Loan Key-Words:

  • Consolidation – Combining multiple federal or private loans into one single loan.
  • Default – Typically occurs after failing to make loan payments for 270 days.
  • Deferment – The postponement of repaying a loan, during which interest may or may not accrue.
  • Direct Loan – A federal student loan, made through the William D. Ford Direct Loan Program, which eligible students and parents borrow directly from the US Department of Education.
  • Direct PLUS Loan for Graduates – Available for graduate students or professional degree students who are in college at least half-time, where the student is responsible for interest on the loan during all periods.
  • Direct PLUS Loan for Parents – Available to parents who have dependent students who are enrolled at least half-time, where parents are responsible for the interest payments from the first month.
  • Direct Subsidized Loan – Loan to students who can prove a financial need and will be attending college at least half-time, where the student is not liable for interest on the loan while in school or during any deferment periods.
  • Direct Unsubsidized Loan – Loan to students who will be attending college at least half-time, no requirement to demonstrate financial need. The student is responsible for the interest payments during all periods.
  • Disbursement – Payment of federal student aid funds to the borrower by the school.
  • Discharge – The release of a borrower from the obligation to repay a loan.
  • Discretionary income – (for IBR, PAYE, and loan rehabilitation) The difference between your income and 150% of the poverty guideline for your family size and state of residence.
  • Eligibility – Criteria used to determine if you can receive a loan.
  • Federal loan – Loans made by the federal government.
  • Forbearance –Period during which your monthly loan payments are temporarily suspended or reduced.
  • Forgiveness – The cancellation of all or some of your remaining student loan balance.
  • Grace period –The period of time after a borrower graduates, leaves school or drop below half-time enrollment where they are not required to make payments on their student loans.
  • IBR (Income-Based Repayment) – A type of IDR plan that caps your monthly student loan payment at 10-15% of discretionary income.
  • ICR (Income-Contingent Repayment) – A type of IDR plan that caps your monthly payment at 20% of discretionary income or what you would pay at a fixed rate for 12 years.
  • IDR (Income-Driven Repayment) – Student loan plans designed to cap your monthly payment based on your income.
  • Interest – A loan expense charged for the use of borrowed money.
  • Interest capitalization – The addition of unpaid accrued interest to the principal balance of a loan.
  • PAYE (Pay As You Earn) – Federal loan repayment program where payments are capped at 10% of the borrower’s income that exceeds 150%of the Federal Poverty Line.
  • Perkins Loan – A federal student loan, made by the borrower’s school, for undergraduate or graduate students who can demonstrate financial need.
  • PLUS Loans – A loan available to graduate students and parents of dependent undergraduate students for which the borrower is fully responsible for paying the interest regardless of the loan status.
  • Principal – The total loan amount borrowed.
  • Private loan – Loans made by private lending institutions.
  • REPAYE (Revised Pay As You Earn) – The extension of the PAYE program designed to remove previous restrictions of other IDR plans while adding some additional benefits.
  • Servicer – A person or company who manages your loan on behalf of the original lender. They provide services such as collecting payments, responding to customer service inquiries and performing other administrative tasks in the maintenance of your loan.
  • Wage garnishment – The process of deducting money from an employee’s compensation, often through a court order.