College debt? Find out if you qualify for a student loan forgiveness program
A shockingly high number of college graduates have student loan debt, yet not all are aware of the more than 100 student loan forgiveness programs that exist which could potentially help erase some of the money owed.
In the United States, more than 44 million borrowers collectively owe nearly $1.5 trillion in student debt. An estimated two-thirds of college seniors who graduated from public and private colleges in 2017 had student loan debt averaging nearly $29,000, according to a report released by the Institute for College Access & Success.
When analyzing consumer debt categories, student loans come in second just behind mortgages and ranks higher than credit card debt and auto loans.
"In general, most consumers are aware that forgiveness programs for student loans exist," Betsy Mayotte, president of The Institute of Student Loan Advisors (TISLA), said. "What they often don't know, however, are all the rules for qualification or that there are other programs beyond the relatively well known Public Service Loan Forgiveness program."
The Public Service Loan Forgiveness program is a federal program signed into law by President George W. Bush in 2007 to give those burdened by debt a way out by working in public service.
To potentially get the remainder of your student debt wiped out, the program has three basic requirements: Loans must be federal direct loans, your employer must be a be a government organization, a nonprofit organization or some other type of not-for-profit organization that provides a public service, and you need to have made 120 qualifying, on-time payments in an income-driven repayment plan or the standard repayment plan.
If you decide to apply, pay attention to the details. The U.S. Education Department previously released data showing 41,000 people applied for the program, but only 206 received forgiveness. Approximately 32,000 applications were denied because they didn't meet the program requirements and nearly 12,000 were turned down for missing information, according to CNBC.
Some may be able to get their loans forgiven through the Income-Based Repayment Program. Under the program, student loan payments are 10 percent or 15 percent of the borrower's discretionary income. After making consistent payments under IBR for 20 or 25 years, the remaining loan balance will be forgiven. The terms depend on when the person first borrowed.
Student loan forgiveness programs can be based on your profession, where you live, service in the military, volunteering for organizations like VISTA and Americorps, disability and more.
Whether you are a full-time teacher who has worked for a public school in a low-income area for five consecutive years, your school closed down while you were still attending and kept you from completing your course of study, or you're a U.S. Department of Justice employee working in an attorney position -- there are many federal programs and state-based programs out there.
Mayotte said college students who borrow should never anticipate forgiveness on a loan, either, adding that the "programs change frequently, especially the state-based programs."
There can also be some downsides to student loan forgiveness programs that borrowers should take note of.
"The forgiveness that happens after being on an income-driven plan under the federal loan program does tax the forgiven amount. That can be burdensome but one might argue it's still better than having to repay the full balance on the loan," Mayotte said. "Some of the profession-related programs have some pretty severe monetary penalties if you don't fulfill your service requirement. I worked with a borrower recently who was unable to fulfill his contract and owed about $9,000 back in repayment benefits he'd received - and over $36,000 in penalties."
Mayotte added that for all student loan forgiveness programs, borrowers have a responsibility to ensure they understand the rules and requirements from the start.
"Sadly, I work with many borrowers who thought they were close to forgiveness only to find out they were not due to missing a key eligibility requirement," Mayotte said.
The Institute of Student Loan Advisors has a detailed list of student loan forgiveness programs on its website. To find out whether you qualify to have your federal student loan forgiven, click here.
This story was reported from Los Angeles.