Student loan debt relief: Forgiveness and other options

Woman lying on the floor of her living room with her laptop open, considering her student loan debt relief optionsImage: Woman lying on the floor of her living room with her laptop open, considering her student loan debt relief options

In a Nutshell

Struggling with mounting student loan bills can be overwhelming. If the majority of your student loan debt is in federal loans, you might have a few options for student loan debt relief. And if you took out private student loans, don’t despair, there are options for you as well.
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With Americans owing a staggering $1.6 trillion on their student loans in the fourth quarter of 2023, it’s no wonder that repaying this debt has become a challenge for many.

If you’ve ever had trouble repaying your education loans, you’re not alone. A recent report from the Federal Reserve found that 12% of people with student loan debt were behind on their payments in 2021.

With a moratorium on federal student loan payments having expired in 2023, people with outstanding loans are wondering what they can do.

Read on for ways to get a handle on your student loan debt.

Is there debt relief for student loans?

The short answer is yes. But the next question is which debt solutions apply to you.

Federal student loans come with a handful of helpful features that other types of loans don’t often offer. But while these features may sound promising, they often come with narrowly defined eligibility requirements that might make them tough to actually qualify for.

Let’s explore what some of the most common relief options are, take a look at the eligibility criteria and talk about which option may be right for your situation.

Types of relief from student loan debt

If you took out federal student loans, you tend to have a wider range of debt relief options than if you took out private loans. Federal loans offer relief options both at the national and state level, with some programs targeting certain professions while others are tied to your income.

Here’s a closer look at some of the most common relief options for student debt.

Income-driven loan repayment

The federal income-driven loan repayment program is by far the most common relief option for student debt.

Most federal student loans are eligible for at least one of four income-driven repayment plans. The plans reconfigure your monthly student loan payments to a level that’s based on your income and family size.

In late summer 2023, the Department of Education launched a new plan called SAVE (Saving on a Valuable Education) that could cut many borrowers’ monthly payments in half while eliminating them altogether for others.

SAVE was created to replace the income-driven repayment plan known as the Revised Pay as You Earn (REPAYE) program.

Highlights of the SAVE program include:

Lower payments — Beginning July 2024, payments on undergraduate loans will be 5% of a borrower’s discretionary income, down from 10% in the REPAYE plan. Borrowers with graduate debt will pay 10% of discretionary income.

More income protection — As of fall 2023, borrowers won’t have to make any payments if their income is 225% of the federal poverty guidelines. That translates to about a $15 hourly wage and means an individual making about $32,800 or a family of four making $67,500 annually wouldn’t have to make student loan repayments.

A break on interest — If your loan payment isn’t large enough to cover the interest owed, the Department of Education will not charge monthly interest based on the portion you could not pay.

A shorter path to forgiveness — Borrowers with original undergraduate student loan balances of $12,000 or less will get their loans forgiven after just 10 years of making monthly payments — rather than the current repayment period of 20 years. Each additional $1,000 borrowed above $12,000 would add one year of payments before eligibility for forgiveness.

Borrowers in the REPAYE plan are being automatically enrolled in SAVE. If you aren’t signed up for an income-driven repayment plan, you can enroll at the Department of Education’s Federal Student Aid website.

Teacher loan forgiveness

If you’ve been a full-time teacher for five consecutive academic years in a low-income public elementary or secondary school or educational service agency, and meet other qualifications, you may be eligible for forgiveness of up to $17,500 on eligible federal student loans.

Learn more about the Teacher Loan Forgiveness Program to see if you qualify.

Federal Perkins Loan cancellation for teachers

You may qualify for cancellation of up to 100% of a Federal Perkins Loan if you’ve worked full-time in a public or nonprofit elementary or secondary school system as a teacher for students from low-income families, a special education teacher, or a teacher of math, science, foreign languages, bilingual education, or of a subject in which there is a shortage of qualified teachers in your state.

Public Service Loan Forgiveness

If you’re a full-time government employee or work for a qualifying nonprofit organization, you may be eligible for loan forgiveness. The loan you’re trying to get forgiven must be a Direct Loan Program loan. Should you qualify, you might get the remaining balance of their loans forgiven after making 120 qualifying payments (10 years’ worth).

You must be employed by one of the two types of organizations below to meet the criteria for the program.

  • Government organizations at the federal, state, local or tribal level
  • Nonprofit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code

If you’ve previously enrolled in an income-driven repayment plan, you can still apply for Public Service Loan Forgiveness to see whether your student loan debt can be forgiven in 10 years — up to 15 years sooner than paying it off with IDR plans. Sound confusing? We know. Since each income-driven repayment plan is unique to your situation, we highly recommend doing your research. If you’re interested in learning more about PSLF and how it works, contact FedLoan at 1-855-265-4038.

Student loan forgiveness for nurses

Nurses who work for the government or a nonprofit may be able to find relief with the Public Service Loan Forgiveness program.

As with teachers, eligible nurses can apply to get the remaining balance of their loans forgiven after making 120 qualifying payments. To benefit from the Public Service Loan Forgiveness program, you’ll need to make your payments while enrolled in an income-driven repayment plan.

Keep in mind that if you’re a nurse working full time, you may also qualify for a Perkins Loan cancellation, with up to 100% of your outstanding Perkins Loan canceled for five years of eligible service.

Meanwhile, the National Health Service Corps offers student debt relief for qualifying nurses who agree to work a set number of years in areas that don’t have adequate medical care.

The Nurse Corps Loan Repayment Program pays up to 85% of qualifying unpaid nursing education debt for registered nurses, advanced practice registered nurses and nurse faculty.

Over the course of two years, accepted applicants who work in a critical shortage facility or as nurse faculty in a nursing school will be paid 60% of their outstanding nursing education debt.

After fulfilling the initial two-year agreement, participants may be eligible to apply for a third year for an extra 25% of their original nursing education loans.

Student loan forgiveness for veterinarians

Offered by the U.S. Department of Agriculture, the Veterinary Medicine Loan Repayment Program will pay up to $25,000 each year toward qualified educational loans for veterinarians who agree to serve for three years in an area with a veterinarian shortage.

Additional relief options

If you can’t find relief under the programs we discussed above, you may have some other options to turn to.

Student loan discharge

Many of us have seen the headlines of certain schools closing suddenly. If that’s happened to you, you might qualify to have your loans discharged. While this will likely be an uphill battle, in some situations, you may be able to have your federal student loans forgiven if your school shut down while you were actively enrolled — or within a certain period after you’ve withdrawn from the institution. If you become disabled (totally and permanently), you might also qualify for a loan discharge.

Federal student loans will be also be discharged if the student dies or if the person who took out a PLUS loan on behalf of the student dies.

And if your school misled you or violated state laws related to your loan or to educational services you received, you may be eligible for forgiveness of your federal student loans (known as “borrower defense to loan repayment forgiveness”).

Should I consider bankruptcy to discharge my student loan debt?

Although many types of consumer debts can be discharged in bankruptcy, student loans typically aren’t one of them. In rare cases you can have your federal student loan discharged — but only after declaring Chapter 7 or Chapter 13 bankruptcy and proving in court that repayment would impose undue hardship on you and your dependents.

Unless the federal government enacts laws making it easier to use bankruptcy to free yourself from student loans, contacting your loan servicer to discuss repayment plan options is probably a more realistic financial strategy.

What happens to my credit scores if my student loan is forgiven or discharged?

Your credit won’t be hurt if your student loans are forgiven.

But keep in mind that if you’re able to discharge your student loan debt in bankruptcy, which is rare, the bankruptcy will negatively affect your credit scores. You should note that bankruptcies can stay on your credit reports for up to 10 years.

Do I have to pay taxes on a forgiven or discharged student loan?

In general, if a debt is canceled, forgiven or discharged for less than the amount you agreed to pay, the amount of the canceled debt is taxable and you must report it on your tax return in the year it’s written off. However, there are exceptions when it comes to student loans.

Student loan forgiveness is generally excluded from income if the forgiveness is contingent on the person working for a period of time in a certain profession, like teaching or nursing.

And if you participate in the Public Service Loan Forgiveness program, the amounts forgiven aren’t considered taxable income by the IRS. Similarly, amounts from student loans discharged because of the death or total and permanent disability of the student are not taxable.

But keep in mind that income-driven repayment plans are different. If you repay your loans under this program, you may be liable for income tax on the forgiven amount if you’re still carrying a balance at the end of your student loan repayment period.

Common pitfalls to avoid

If student loan debt is preventing you from making financial progress, you may be able to find some measure of relief in programs designed for those with federal student loan debt.

Even if you don’t qualify for a debt relief program, the U.S. Department of Education and its federal loan servicers can offer help — for free. You don’t need to pay a student loan debt relief company for services that you can take care of yourself. At no cost, you can contact your loan servicer to ask about …

  • Lowering your monthly loan amount
  • Changing your repayment plan
  • Consolidating multiple federal student loans
  • Postponing monthly payments while you further your education or are unemployed
  • Seeing if you qualify for loan forgiveness or other programs
  • Getting your loans out of default

And know the warning signs for scammers. If a student loan debt relief company asks you to pay an upfront fee or monthly charge, promises immediate loan forgiveness, or asks for your Federal Student Aid ID password, you may be dealing with a bad actor. If you decide to work with a private company, double check with the U.S. Department of Education beforehand to make sure you’re working with a legitimate loan servicer.

Managing student loans is an important element of your financial journey. It’s not surprising that a recent report from the Federal Reserve found that adults carrying student loan debt reported lower levels of financial well-being than did similar adults without outstanding debt.

So if student loan debt is weighing you down, take some time to explore your options and see what relief programs or free loan services might make sense for you.

About the author: Brad Hanson is a senior editor at Credit Karma. His 30 years of experience in print and digital media includes work for the Los Angeles Times-Washington Post News Service, and Polyvore. Most recently before… Read more.