What You Need to Know About Student Loan Forgiveness and Consolidation
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Outstanding student debt now totals close to $1.4 trillion in the U.S. – an amount that’s doubled in the last decade. The cost of a college education has soared over the last 30 years, and students now owe anywhere from $5,000 to $40,000 by the time they receive their diploma.
Your student loans can have a devastating impact on your financial health for years to come. Your credit score will take a heavy hit, affecting your ability to finance a car, buy a house, rent an apartment, or get a good job. Fortunately, you have options. There are ways to get help with repayment through the following types of student loan forgiveness or consolidation.
Student Loan Forgiveness
The student debt crisis is only increasing, but the government has begun putting programs in place to help graduates pay off their loans. If you meet certain criteria, a portion or all of your student loans may be forgiven, cancelled, or discharged, freeing you from any tax burdens.
There are a variety of programs available, but each one is different – and they apply only to federal loans. Private loans are not eligible. Here are some of the top federal loan forgiveness options:
Teacher Loan Forgiveness
If you’re a teacher, you could get the principal on your loan reduced by anywhere from $5,000 to $17,500. Not only that, but your remaining balance at the end of a 10-year term would be forgiven.
The two programs you can apply for are Teachers Loan Forgiveness and Perkins Loan Cancellation. Here are some of the eligibility requirements for these programs:
- You must pass Virginia licensing exam and be fully certified to teach in Virginia.
- You must provide direct classroom teaching in a public school.
- You must have taught full time for at least five consecutive academic years.
- The school in which you taught must qualify for Title I funding and services.
Public Service Loan Forgiveness
If you participate in the Direct Loan program and work full time in the public sector for a qualifying employer, you may be eligible to have your loan balance forgiven after you make 120 payments.
However, federal officials are picky about which payment programs are eligible. Qualifying payments have traditionally included income-based, income-contingent, and pay-as-you-earn programs, but that could soon change.
Apply for PSLF as soon as possible. If your current payments don't qualify, you'll hear from the government. To remain eligible for this type of forgiveness, it’s important to submit a new employee certification form every year and each time you change employers.
Closed-School Loan Forgiveness
If your school closes before you earn your degree, there’s a special program just for you. Your Direct, Perkins, or Federal Family Education loans may be 100 percent discharged if you meet certain requirements:
- The school closes while you’re enrolled, preventing you from completing your degree program. You may still qualify if you were on an approved leave of absence.
- You withdraw from the school within 120 days of its planned closing. If you withdraw any sooner, you will not be eligible for the discharge.
You don’t qualify for the closed-school discharge if you’ve completed all the required courses for your degree, if you’re enrolled in a comparable program at another school, or if you transfer credits from the closed school.
Disability Loan Forgiveness
If you have a physical or mental impairment that makes it impossible for you to hold gainful employment, the Total and Permanent Disability Discharge will completely erase your student debt.
As the name suggests, your disability must be profound and last at least 60 months.
To qualify, your doctor or the Department of Veterans Affairs must submit a certified form to the Department of Education for review. If you’ve defaulted on your loan, the department will contact the loan servicer. Collection proceedings will be suspended until a determination is made in three to five months.
If you don’t qualify for student loan forgiveness, you can try loan consolidation to make repayment simple. It’s not uncommon for students to have multiple loans with several different lenders, and remembering all the payment due dates is a challenge.
That’s just one reason consolidating debt makes sense. Consolidation turns all of your student loans into a single loan that’s secured and used to pay off several other loans. You’ll only have to keep track of one monthly payment to one lender.
There are even more benefits:
- There are consolidation options for both federal and private loans.
- With a private loan, you may have slightly lower monthly payments.
- If you have a good job and good credit score, you can choose from several repayment packages and possibly get a better interest rate.
- If you’ve defaulted or are behind, consolidating typically stops the collection process.
- For federal loans, the application process and program are free.
- Loan repayment terms range anywhere from five to 20 years.
Even people who don’t qualify for loan forgiveness can improve their financial circumstances and simplify their lives with loan consolidation.
Solve Your Student Debt Woes
You don’t have to suffer the weighty burden of student debt for the rest of your life once you’ve graduated. Instead, you can lower your payments, eliminate some of your debt, and even have your debt erased thanks to various forgiveness and consolidation programs. No matter which you qualify for, you’ll feel less constrained by your education debt.
Again, as you research programs and apply for help, make sure the information you’re relying on is current. Things seem to change with each new administration. If you decide on a private consolidation firm, make sure that it’s a reputable one with all the proper credentials. New loan forgiveness programs are still forming, too, meaning it’s important to stay informed so you know about the latest options.
Like anything, it's always a good idea to be aware of the latest research. We recommend comparing at least 3 or 4 options before making a final decision. Doing a search online is typically the quickest, most thorough way to discover all the pros and cons you need to keep in mind.