Student Loan Forgiveness: How to Cancel Your Debt

Summary: Student loan forgiveness programs encourage people to pursue careers in fields that may have low salaries or require high student loan debt. In exchange for your years of service in a field or occupation, all or part of your federal student loan balance may be cancelled.

When a student loan is forgiven, it is cancelled. You are no longer obligated to repay it.

You earn student loan forgiveness for a certain number of years of service in a particular occupation or for volunteer service. The goal of these programs is to encourage people to pursue career paths that may have low salaries or require high student loan debt.

Student loan forgiveness can be a great way to reduce your student loan debt if:

  • You’re interested in pursuing a public-service career, but you’re worried about earning a low salary and taking on too much debt
  • You’ve already borrowed and you’re currently in a public-service or volunteer-service job
  • You’re pursuing an occupation that has a national or regional shortage of qualified workers or that has strategic importance to our country

Up-front Student Loan Forgiveness

Up-front forgiveness cancels part of your student loan debt for each year of service, as it occurs. Even if you don’t complete the number of years of service to earn the entire forgiveness benefit, you would still earn some student loan forgiveness for the time you served.

How up-front forgiveness could work:

Time Period Amount of Student Loan Debt Forgiven
End of Year 1 Lesser of: 20% of original loan balance or $7,500
End of Year 2 Lesser of: 20% of original loan balance or $7,500
End of Year 3 Lesser of: 20% of original loan balance or $7,500 
End of Year 4 Lesser of: 20% of original loan balance or $7,500 
End of Year 5 Lesser of: 20% of original loan balance or $7,500 

Examples of Up-front Forgiveness: Loan Repayment Assistance Programs (LRAP), Perkins Loan Forgiveness

Back-end Student Loan Forgiveness

Back-end forgiveness cancels your remaining debt after a number of years of service. This type of forgiveness is an all-or-nothing benefit that requires you to complete the full-period of service to earn cancellation of your debt.

How back-end forgiveness could work:

Time Period Amount of Student Loan Debt Forgiven
End of Year 1 0
End of Year 2 0
End of Year 3
End of Year 4
End of Year 5 Remaining loan balance (up to specific loan program limits)

Example of Back-end Forgiveness: Public Service Loan Forgiveness (PSLF)

How to Compare Student Loan Forgiveness Programs

There are typically other requirements to qualify for student loan forgiveness. For example, you might need to make a certain number of “qualifying monthly payments,” depending on the program.

Think carefully about the two types of forgiveness benefits before committing to a program:

  • Up-front forgiveness: Provides partial forgiveness, even if you don’t complete all years of service.
  • Back-end forgiveness: Does not provide partial forgiveness if you don’t fulfill the service requirement.

Student Loan Forgiveness Programs

Click the links in this list to view more details about each type of student loan forgiveness program.

  • Public Service Loan Forgiveness (PSLF): Forgives the balance on your Direct Loans after you make 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer.
  • Teacher Loan Forgiveness: Offers up to $17,500 in student loan forgiveness for teachers who teach full time for five years in certain low-income schools and meet other program qualifications.
  • Perkins Loan Forgiveness: Provides up-front loan forgiveness for certain types of public service or for full-time work in certain occupations.
  • Volunteer Work: AmeriCorps VISTA (Volunteers in Service to America) and Peace Corps service qualify for several types of student loan forgiveness.
  • Health Professions: Several federal agencies provide student loan forgiveness programs for health professionals who work in specific locations or specialize in certain fields.
  • Law School Loan Repayment: Several programs provide forgiveness for law school graduates who practice public interest law, such as public defenders.
  • Government Employees: Many agencies provide up to $60,000 ($10,000 per calendar year) in student loan repayment assistance in exchange for a minimum commitment of 3 years of service.
  • Military Service: Different branches of the U.S. Armed Forces offer a number of different forgiveness and student loan repayment programs.
  • Income-Based Repayment Plans: After 20-25 years of qualifying payments in one of the U.S. Department of Education’s income-based repayment plans, your loan balance is forgiven.
  • TEACH Grant: Provides up to $4,000 per year to students who agree to a 4-year teaching commitment at specific schools and educational service agencies serving low-income families. (Although this isn’t technically a forgiveness program, it has a similar function.)

Student Loan Forgiveness and Income Taxes

Loan forgiveness that requires you to work in a particular occupation is tax-free, such as:

  • Public Service Loan Forgiveness
  • Teacher Loan Forgiveness
  • Other job-specific programs

Other types of student loan debt cancellation are treated as taxable income, leading to a potential tax liability, such as:

  • Income-based repayment plan forgiveness
  • Student loan repayment assistance programs
  • Student loan discharge for disability, death, closed school, etc.

Recommendations

  1. Before you commit to a student loan forgiveness program, make sure you understand all of the eligibility requirements and the benefits available.
  2. Once you choose a forgiveness program, make all of your payments according to the program rules.
  3. If you have Perkins Loans or older loans from the FFEL (Federal Family Education Loan) program, you will need to consolidate with a Direct Consolidation Loan to be eligible for Public Service Loan Forgiveness.
  4. If you aren’t eligible for any forgiveness programs, research student loan discharge options for cancelling your debt. Start by contacting your loan servicer for other possible options.