Everyone knows the alarming news about student loans: they have become the second largest source of consumer debt in the United States behind mortgages, surpassing credit card debt since the financial crisis.
And there is little relief in sight. You have to pay back your loans even if you drop out of college or can’t find a job – or just think in hindsight that education was nowhere near the $ 33,000 average loan value that 2014 graduates report at home with their degrees, according to an analysis of government data by Mark Kantrowitz of Edvisors. The Wall Street Journal called the 2014 class “the most indebted of all time.”
Congratulations, graduates! Now, what to do with this financial albatross?
There are income-based repayment plans – which President Obama has pushed in an effort to reduce the debt burden as wages continue to stagnate and job opportunities remain scarce – and deferral is an option. if you lose your job or have some other kind of financial hardship. . Refinancing student loans can also lower your payments. But most of the student loan holders have to end up paying the piper, except for those who can claim real student loan forgiveness.
Could it be you?
The Consumer Financial Protection Bureau revealed last year that many of the estimated 25 percent of the US workforce employed by a public service employer “may be eligible for existing student loan repayment benefits.”
It is helpful to understand the circumstances that could cause the federal government to classify your loans as eligible for postponement, cancellation or discharge.
Federal loan program families
The most important thing to know is this: Student Loan Cancellation Programs cover many types of Federal Student Loans, including Direct Loans, Perkins Loans, and Federal Family Education Loans Program loans. (FFEL), such as Stafford loans, but there is no dedicated student loan forgiveness program for private student loans. In addition, the forgiveness programs vary depending on the type of federal loan – some apply only to direct loans and others only to Perkins loans, for example.
The US Department of Education provides a reference table that covers all the conditions that can lead to a loan cancellation and covers all types of federal loans, as well as links to the applications that must be met. Here are the basics:
For Direct Loan, FFEL Program, and Perkins Loans, the following conditions may result in 100% student loan forgiveness:
- Total or permanent disability or death (also called discharge rather than pardon).
- Bankruptcy (but only in rare cases).
- Closure of attendance school before graduation.
- False loan certificate from the school.
The forgiveness of the teacher
The safest way to qualify for a student loan forgiveness is to work as a teacher, in the public service sector, or for a non-profit organization.
If you are a full-time teacher for five consecutive years at a designated elementary or secondary school or educational service organization serving students from low-income families, you may be eligible for a maximum of $ 5,000 (up to 17 $ 500 for special education teachers and secondary mathematics and science teachers) of the total loan amount remaining due after the end of the fifth year of education.
Note, however, that graduate students and parents of students who hold PLUS loans are not eligible. Loans with balances taken out before October 1998 are not eligible and your five consecutive years of teaching must have started after October 1998.
The teacher loan repayment request is available here.
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For Perkins loan holders, up to 100% loan cancellation may be granted if you have worked full time in a public elementary or secondary school system or as a non-profit teacher. serving students from low-income families; or are a teacher of special education, including teachers of infants, toddlers, children or youth with disabilities; or a teacher in the fields of mathematics, science, foreign languages or bilingual education, or in any other area of expertise determined by a public education body to lack qualified teachers in that state. The following formula applies to the planned cancellation:
- 15 percent canceled per year for first and second years of service.
- 20 percent canceled for the third and fourth years.
- 30 percent canceled for the fifth year.
Public service employees
For civil servants in general, the main loan program considered for cancellation is direct loans. Holders of Perkins or FFEL loans who work in the public sector and wish to qualify should first consolidate their loans into the Direct Loan program. PLUS Loans for Parents and Graduate Students and / or Professional Students are part of the Direct Loan Program.
Full-time employment with a federal, state, or local agency, entity, or organization, or a nonprofit organization designated as tax-exempt by the Internal Revenue Service, may qualify you for this program. A private not-for-profit employer that is not a tax-exempt organization may also qualify if it serves the public interest and has no affiliation with unions or partisan politics.
The basic factors to qualify are:
- Make 120 full, on-time, and scheduled monthly payments on your direct loans. Only payments made after October 1, 2007 are eligible. (Perkins or FFEL loan holders who consolidate in the direct lending program must begin the 120 payment cycle after the loans are consolidated.)
- Make these payments as part of a qualifying repayment plan.
- When you make each of these payments, you must be working full-time in an eligible public service body.
What to do if a request is rejected
Of course, applying for a student loan forgiveness does not mean it will be granted, and it pays to be extra careful when filling out the necessary forms.
A negative decision on the cancellation of the student loan cannot be appealed, except in cases of false certification and forged signature release, which the United States Department of Education may review.
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If the basis for a loan forgiveness request was to close a school before a student could graduate but the loan forgiveness request is rejected, other options include:
- Contact the state licensing agency to see if there is a tuition recovery fund or performance guarantee that will cover damage caused by the school closure.
- Claim a loss in bankruptcy proceedings if the school has filed for bankruptcy.
Students can also view the federal financial strength rating of higher education institutions when deciding where to attend school. Nor is it a guarantee of financial stability or that a school will go bankrupt, but it is a resource to consult to analyze the financial situation of an institution before taking out loans to attend it.