Separate and distinct from the special provisions in place for student loans in response to the COVID-19 pandemic (zero interest and forbearance for payments), there are a number of standard provisions for the forgiveness of federal student loans.
The first part of this article will confine itself to the standard provisions for federal student loan forgiveness as a part of the federal Public Service Loan Forgiveness program. The second part will focus mainly on other forgiveness programs.
The programs discussed in this article only deal with federal – not private – student loans. A federal student loan is made by the government. A private student loan is made by a bank, credit union, and some state-based affiliated organizations. As a general rule, private student loans are more expensive and less flexible than federal student loans.
Part One: Federal Public Service Loan Forgiveness.
The first condition for qualification for forgiveness is that the borrower must hold a full-time public service position with a qualified employer. The employers that usually qualify are federal, state, or local governments, as well as some charitable (501© (3) organizations.
The second condition is that the loan must be a “Federal Direct Loan” with an income-driven repayment plan. This means that the repayment plan for the federal direct loan in question must have one of the following options: Income-Driven Repayment Plan, Graduated Repayment Plan, Extended Repayment Plan, and Consolidated Graduated Repayment Plan
The third condition is that the borrower must have made 120 payments (10 Years) on a qualifying federal direct loan. If forgiveness is granted, the remaining balance of the loan is forgiven and the amount forgiven is not subject to income tax. The form for Public Service Loan Forgiveness may be accessed at student-aid.gov.
Part Two: Other Federal Loan Forgiveness Programs.
Teacher Loan Forgiveness. Teachers who work for five consecutive years in schools primarily serving low income students may have $17,500 of forgiveness on some federal loans depending upon the subject they teach.
Perkins Loan Forgiveness. Nurses, public defenders, and firefighters are eligible for incremental forgiveness based on the number of years of service with 100% forgiven after seven years.
Income Payment Repayment Loans. A person who simply has an income-driven repayment loan may apply for forgiveness after 20 to 25 years even though that person has not been in public service or teaching; however, if forgiven, the amount forgiven must be treated as taxable income to the borrower.
Texas Student Loans. The State of Texas has a state-driven student loan program which may be accessed at texasoncourse.org and comptroller.texas.gov. These loans are not subject to the same forgiveness provisions as federal direct student loans.
Banker Phares is a practicing attorney and founding member of the Estate Planning and Probate Law certification by the Texas Board of Legal Specialization. He is the John and Karen Mast Professor at SFA and teaches in the Department of Economics and Finance.