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Loan forgiveness programs exist to draw students into careers that, while possibly less lucrative, improve the public good. In exchange for work in undeserved areas or in the Peace Corps, for example, a significant portion of their loans can be wiped clean. Read our how to apply for loan forgiveness guide to learn the critical details.
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Introduction
- As the result of volunteer work, teaching, military service, or other public service employment, the federal government may erase some or all of your student loan debt. The opportunities for loan forgiveness vary widely, from a year's commitment in a volunteer program to years of work in the public sector (after which, presuming you've made on-time payments throughout that period, the rest of your debt is simply wiped away). As what you decide to do professionally may be influenced by your degree of student loan debt, read on to understand the logistics of applying for student loan forgiveness and whether or not you will qualify.
Understanding Key Terms
- When discussing loan forgiveness, there are a few pieces of vocabulary you'll want to learn.
- Loan forgiveness in general: Loan forgiveness comes in a multitude of forms. Upon completion, some programs will give you an "educational award" that can be applied tax-free to your outstanding student loans. Others work by cancelling your loans by a certain percentage each year. Be sure to read all the fine print on any program you choose and know that even after several years of service, you may still need to make payments towards your loans.
- Deferment: Deferring your loans means you postpone payment. Many lenders allow you to defer your loan payments while you're participating in a program that qualifies for loan forgiveness. If you have federally subsidized loans, interest will not accrue while your loans are deferred. For unsubsidized loans or private loans, interest may accrue even if you are not making payments. Be sure to check in with your program to see if it will make these interest payments for you, or if you are responsible for them. Then see Mahalo's guide, How to Defer Student Loans.
- Forbearance: If you do not qualify for deferment but still need to postpone payment on your loans while you participate in a particular program, you may qualify for forbearance. Unlike deferment, interest will accrue no matter what kind of loan you have. Thus, it is always better to defer student loans than to apply for forbearance if at all possible.
Will Loan Forgiveness Benefit You?
- Loan forgiveness is a great way to give back to the public good while the government pays back your student loans. But it isn't for everyone.
- Remember that loan forgiveness will not necessarily cancel your entire loan. It isn't a get out of jail free card. Different programs offer different amounts of loan forgiveness, so read the fine print carefully.
- Doing community service work in an impoverished West African village or teaching in an overcrowded school with few resources isn't easy. If you hadn't already thought seriously about doing the kind of work that does offer loan forgiveness, you shouldn't switch course just to pay off your debt.
- If, however, you aren't sure exactly what you want to do next, a stint in Americorps or the Peace Corps could be an excellent opportunity for you.
- If reducing student loan debt is your only motivation for seeking out loan forgiveness, you might want to consider your other options first: switching your repayment plan or consolidating student loans (grouping them together under one fixed rate) to lower your monthly payment.
- Also see Mahalo's guide to How to Reduce Student Loan Debt to assess all your options for surviving your student loans.
- And remember that almost no loan forgiveness program we've seen will accept you if you are in default on your loans, meaning you haven't paid in over 180 days.
Choose the Right Program
- You can qualify for loan forgiveness if you volunteer or are employed in one of the following professions.
Volunteer Programs
- Peace Corps: Volunteers may apply for deferment of Stafford, Perkins and Consolidation loans and partial cancellation of Perkins Loans (15% for each year of service, up to 70% in total). Note it is your responsibility to apply for any deferments directly with your lenders and waiting until after you've completed service is likely too late.
- Americorps: Serve for 12 months and receive $4725 to be used towards your loan, plus a living stipend.
- VISTA: Complete 1700 hours and receive $4725 against your loan.
Volunteering for Military Service
- National Guard: Students who are in the Army National Guard may be eligible for their Student Loan Repayment Program, which offers up to $10,000.
- Members of the military also qualify for deferment options following demobilization in time of war or national emergency, while students currently in school who are called up for active duty can apply for a 13-month deferment that starts upon their return home.
- Members of the military additionally qualify for extensive scholarship programs and tuition assistance. See FinAid's resource on military aid for more information.
Options for Teachers
- Teaching in an underserved area: Those who teach full-time in an elementary or secondary school that serves students from low-income families can have a portion of their Perkins loan forgiven, as well as their Stafford loans.
- Teach for America offers similar benefits to Americorps volunteers: the opportunity to defer or apply for forbearance on student loans and a $4725 education award at the end of each year of service.
- For Stafford loan borrowers, if you have been teaching for at least five years at a designated low-income school, you are eligible for up to $5,000 in loan forgiveness. You may receive up to $17,500 if you are a math or science teacher or special education teacher.
- For Perkins loan borrowers, you may be eligible for 100% loan forgiveness if you teach full-time in a low-income designated school or are teaching in an area with a particular academic shortage.
- See the American Federation of Teachers' information on loan forgiveness to find specific programs that will erase student debt. Programs vary by state, experience, and level of education.
- For teachers who may not qualify for loan forgiveness, deferment or forbearance might be an option if you are still teaching full-time.
- Teaching in an underserved area: Those who teach full-time in an elementary or secondary school that serves students from low-income families can have a portion of their Perkins loan forgiven, as well as their Stafford loans.
Options for Medical Professionals
- Doctors who practice in an area suffering a clinician shortage may qualify for loan forgiveness.
- Doctors and nurses who want to contribute to an underserved area should consult the National Health Service Corps's list of opportunities.
- Doctors performing medical research in particular areas (AIDS research, for example, some pediatric research, some infertility research, etc.) also can qualify for loan forgiveness.
- Nurses who provide two years of service in a critical shortage facility are eligible for 60% loan forgiveness. Nurses may be able to work a third year for additional reductions in loans.
Options for Lawyers
- Lawyers in the public interest have a few options for loan forgiveness. They should see Equal Justice Works's online resources for finding loan repayment assistance programs for lawyers.
- Lawyers working in the public interest may also qualify for loan forgiveness after 10 years of service according to the College Cost Reduction and Access Act.
- Lawyers in the public interest have a few options for loan forgiveness. They should see Equal Justice Works's online resources for finding loan repayment assistance programs for lawyers.
Options for Social Workers
- Social workers in the public or private nonprofit sectors who work with clients considered to be high risk and/or low-income, as well as practitioners providing early intervention services, can qualify for Perkins loan cancellation up to 100% over a five year period.
- Also see the NASW's list of resources by state for loan forgiveness for social workers.
- Social workers in the public or private nonprofit sectors who work with clients considered to be high risk and/or low-income, as well as practitioners providing early intervention services, can qualify for Perkins loan cancellation up to 100% over a five year period.
Additional Loan Forgiveness Options
- As of the passage of the College Cost Reduction and Access Act in 2007, anyone working in the public service realm (librarians, law enforcement professionals, public school teachers, public interest lawyers, social workers, etc.) can qualify for loan forgiveness after 10 years of service and simultaneous payments—after which all remaining debt will be forgiven. See FinAid's explanation of requirements for more details about qualifying for this type of loan forgiveness.
- See FinAid's extensive list of loan forgiveness programs, some of which offer eligibility to students living in particular regions or states, to see if you qualify for any other loan forgiveness programs.
Keep Good Records
- Be sure you have followed through on any administrative responsibilities to ensure your loans will be paid.
- Keep in touch with your lenders as well as the administrator of your program to ensure all relevant paperwork has been filed and you are on track to receive whatever break you'll get.
- Also note that when tax season rolls around, you will need to determine whether loan forgiveness was considered taxable income. There are several exceptions that may mean you will not be responsible for taxes on any loan forgiveness you received, but research these carefully.
- And state laws regarding taxable income will vary, so check those too.
- Because of shifting law (note that the College Cost Reduction Act only passed in 2007, allowing many previously excluded public servants to apply for loan forgiveness), you could qualify for loan forgiveness in the near future even if you are currently exempt.
- Keep up with the news (the New York Times's topic on student loans is a good way to do this) so you are able to take advantage of any changes in legislation or newly applicable volunteer programs.
Resources for How to Apply for Loan Forgiveness
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FinAid: Public Service Loan Forgiveness
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National Association of Social Workers: Loan Forgiveness Programs Available To Social Workers
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U.S. Department of Health and Human Services: About Nursing Education Loan Repayment
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FinAid: Loan Forgiveness
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Federal Student Aid: Cancellation/Deferment Options for Teachers
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U.S. Department of Health and Human Services: National Health Service Corps
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National Institute of Health: Loan Repayment Programs
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Equal Justice Works: The Path to Public Interest: Loan Repayment Assistance Programs
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Federal Student Aid: Teacher Loan Forgiveness Program - FFEL and Direct Loan Programs
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Chicago Tribune: "U.S. Lending Helping Hand on Student Loans"
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American Federation of Teachers: Loan Forgiveness Programs
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New York Times: Times Topic: Student Loans
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NASFAA: Initial Summary Of The College Cost Reduction Act
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Equal Justice Works: Resource Center
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Peace Corps: Financial Benefits and Loan Deferment
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FinAid: Military Aid
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Military.com: News about the College Cost Reduction and Access Act
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