While federal student loan forgiveness programs like Public Service Loan Forgiveness (PSLF) are widely known, there’s plenty about student loan forgiveness that might surprise you. Here are five things you might not know:
- Forgiveness is More Than Just PSLF
While PSLF is a well-known program, it’s not the only path to loan forgiveness. Income-driven repayment (IDR) plans also offer forgiveness after 10 to 25 years of qualifying payments, depending on your plan and the specifics of your federal loans. Additionally, there are state-specific programs and forgiveness for certain professions like teachers, nurses, and lawyers working in public sector roles.
- 2. Over 95% of PSLF Applications Don’t Make the Cut
Though efforts are being made to change this statistic, the PSLF program has notoriously high rejection rates, with more than 95% of applications being denied. Common reasons include application missteps, such as applicants missing required paperwork, not holding the right type of loan (must be a federal loan), not being enrolled in a qualifying repayment plan, or not working for a qualifying employer. To ensure you meet all PSLF requirements, use the PSLF Help Tool on the Federal Student Aid website to verify your eligibility or work with a student loan advisor.
- $0 Payments Can Count Toward Forgiveness
Under some IDR plans, if your income is low enough, your required monthly payment could be $0. But what you might not know is that these $0 payments still count as qualifying payments on your path toward forgiveness.
- Forgiveness May Be Taxable
While loans forgiven under PSLF are generally tax-free, forgiveness through IDR plans may be considered taxable income. This means you could face a significant tax bill in the year your remaining loan balance is forgiven. It’s better than still having a loan to pay off, but it’s important to plan for the potential tax impact.
- Certification – and Recertification – Is Crucial
Submitting an Employment Certification Form (ECF) annually or whenever you change employers is crucial for PSLF. This form verifies that your employer qualifies and that you’re making qualifying payments. For IDR, you must recertify your income and family status every year in order to have your discretionary income calculated correctly—in positive news, under some IDR plans, this annual recertification will soon become automatic.
Maximizing Your Chances for Student Loan Forgiveness
Understanding the nuances of different forgiveness options can be time-consuming but worth your while, as you could potentially save a significant amount of money on your loans. Regularly review your loan and eligibility status, keep detailed records of your payments, and stay updated on changes. The more informed you are, the better your chances of successfully achieving student loan forgiveness.