Does your student loan situation look hopeless? Don't give up hope yet. Consider these alternative repayment programs that can provide manageable loan payments and lead to forgiveness of a portion of your loan in exchange for some form of service.
1. Public Service Loan Forgiveness (PSLF) Program – As it stands, the PSLF program allows those working in government organizations and certain non-profit organizations to achieve loan forgiveness. To qualify for forgiveness, borrowers must make ten years of qualifying payments under one of the income-driven repayment (IDR) programs offered by the Department of Education. These programs are popular with certain professions like police/fire department employees and public defenders where collegiate expenses aren't in line with the pay provided by a public service position.
The 2018 Consolidated Appropriations Act, which was passed in March and funds the government through September, has created a one-time-only $350 million expansion of the PSLF program. This fund will cover the cost of canceling the loans of public servants who unknowingly selected non-qualifying repayment plans. These loans will be forgiven on a first-come, first-serve basis until the fund runs out. The Department of Education is currently assessing the full impact of the Act on PSLF, so keep checking the official site for the latest updates.
Be warned: Although the latest spending bill ignored many of President Trump's proposals, his administration still seems intent on eliminating the PSLF program eventually. It isn't clear whether this would also include eliminating the corresponding Teacher Loan Forgiveness program aimed specifically at teachers in low-income districts or service agencies.
2. IDR Programs – As with PSLF, the IDR programs may be subject to change within the next budget. Currently, there are four programs (the REPAYE plan, PAYE plan, IBR plan, and ICR Plan) that generally offer loan forgiveness after twenty years of regular payments that represent 10% of your discretionary income. The proposed Trump budget would combine all these programs into one program, changing the monthly payment to 12.5% of discretionary income but forgiving the remaining loan balance after fifteen years.
3. State Student Loan Forgiveness Programs – If the federal government won't help you, perhaps your state can. Currently, there are only five states that do not offer at least one form of student loan forgiveness (Alabama, Connecticut, Tennessee, Utah, and West Virginia). Texas leads the way with nine different programs targeted at specific groups such as physicians, nurses, and educators. Check the options in your state to see if any state programs apply to you.
4. Military Service – The Army, Navy, Air Force, and National Guard all have a series of programs for loan forgiveness for active-duty military members and/or veterans. While some loan forgiveness programs may end up on the budgetary chopping block, it seems highly unlikely that the current administration – or most administrations – would accept cuts in forgiveness programs within the military.
If forgiveness does not apply, the military also offers deferment options on subsidized loans during active duty service.
5. Employer Programs – Some larger employers offer partial student loan repayment as a recruiting tool. Only 4% of employers offer these programs, according to an estimate from the Society for Human Resource Management – but if you find such an offer, take full advantage.
In special circumstances, other loan forgiveness programs may be available. If your school closes prior to your graduation, you may be able to have the loan discharged. Students at for-profit institutions that engage in fraudulent/illegal practices may also qualify for student loan discharges.
While forgiveness can make a huge difference in your finances, don't forget about taxes. Except for the PSLF and Teacher Loan Forgiveness Programs, loan amounts that are forgiven are classified as taxable income for that year – and your tax bill may skyrocket as a result.
The President could suggest to do away with the PSLF and IDR programs again in the next budget proposal later this year. Keep up with the latest developments to see what options are available to you – and make sure that you make your existing student loan payment on time to maintain eligibility for any forgiveness programs.
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