Student Loan Forgiveness for Teachers
Even though I frequently get questions from teachers about student loan forgiveness programs, there are still many who don’t know that forgiveness and cancellation options exist. In fact, some of these programs were set up specifically for teachers.
Those that do know that programs exist, can quickly get overwhelmed by the different plans and how to decide which, if any, would be the most appropriate for them. In this post, I tried to organize the different plans so that you can quickly figure out if they may be an option for you.
First, I should note that private student loans are not eligible for these forgiveness programs. If you are struggling with these type of loans you will have to call the lender directly and see if they will work with you. Also, it is important to understand that if you consolidate your federal (public) student loans into a private loan, most likely you will lose eligibility for these and any future forgiveness options. If you are unsure about the different types of student loans, HERE is a primer.
Here is a look at the available ways that teachers can potentially get student loans forgiven.
Income Based Payment Plans
When you begin paying back your federal student loans you will choose a payment plan option. You can choose the standard 10-year plan, graduated plan, extended plan, or an income-based option. People struggle with what is the best option for them.
Income-based options come with a potential added benefit of forgiving any balances that remain after a certain amount of years. This can greatly help those with low incomes or very high loan balances.
The government keeps adding income-based plans so it can become confusing pretty fast. Currently, there are 4 income-based plans that can end up in student loan forgiveness: IBR, PAYE, RePAYE, and ICR. Here is a quick rundown of each plan:
Income-Based Repayment Plan (IBR)
For loans issued before July 1, 2014:
Payment max of 15% of your discretionary income.
Remaining loan balance is forgiven after 25 years of payments.
For loans issued after July 1, 2014:
Payment max of 10% of your discretionary income.
Remaining loan balance is forgiven after 20 years of payments.
If any amount is forgiven it will be considered income on that year’s tax return.
Pay As You Earn Repayment Plan (PAYE)
For direct borrowers, if received disbursement on or after Oct. 1, 2011.
Payment max of 10% of your discretionary income.
Remaining loan balance is forgiven after 20 years of payments.
If any amount is forgiven it will be considered income on that year’s tax return.
Revised Pay As You Earn Repayment Plan (RePAYE)
For all direct borrowers no matter when the loan was taken out.
Payment max of 10% of your discretionary income.
Remaining loan balance is forgiven after 20 years of payments. (if all loans for undergrad)
Remaining loan balance is forgiven after 25 years of payments. (if ANY loans for graduate or professional)
If any amount is forgiven it will be considered income on that year’s tax return.
Income Contingent Repayment Plan (ICR)
All direct borrowers qualify.
Payments will be lesser of:
20% of your discretionary income.
The equivalent of a fixed payment plan of 12 years, adjusted to your income.
Remaining loan balance is forgiven after 25 years of payments.
If any amount is forgiven it will be considered income on that year’s tax return.
Parent borrowers can use this plan if they first consolidate their parent PLUS loans into a Direct Consolidation Loan.
*You must recertify your income and family size each and every year for these options. These changes may cause monthly payments to increase or decrease from year to year. It is in your best interest to remember to do this (they do send reminders). If you neglect to do this, negative consequences can include a sharp increase in monthly payment or disqualification of the program.
Public Service Loan Forgiveness (PSLF)
Many teachers are eligible for a program for public service workers because they work in a public school setting. Private school teachers may be eligible depending on the circumstances. For many, this will be the best program among the bunch because it is a ten-year payment timeline (instead of 20 or 25) and the borrower doesn’t have to report any forgiven balances as income on their taxes.
Must be using one of the income-based repayment plans (see above)
Must be a full-time employee. (at least 30 hours per week)
Must work for a public service employer:
Government organization (federal, state, local, or tribal).
Not-for-profits under Section 501(c)(3) IRS tax code.
Other types of non-profits.
Must have a Federal Direct student loan
Family Education Loans (FFEL) and/or Federal Perkins Loans must first be consolidated to a Direct Consolidation Loan in order to be eligible
Remaining loan balance is forgiven after 10 years of payments.
Eligible payments are ones made after Oct.1, 2007.
Any amount forgiven will NOT be counted towards income.
Teacher Loan Forgiveness Program
This program is for teachers that serve low-income students and/or specific subjects of need.
Eligibility:
Have federal loans as of Oct.1, 1998
Employed as a full-time “highly qualified” teacher for 5 consecutive years.
Work for a school that serves low-income students.
Maximum forgiveness amount either $17,500 or $5,000, depending on the subject taught.
Up to $17,500 if math or science at the secondary school level
Up to $17,500 if special education teacher (elementary or secondary)
Up to $5,000 if none of the above.
Any amount forgiven will NOT be counted towards income.
Perkins Loan Cancellation for Teachers
If a teacher has outstanding Perkins Loans (which are need-based student loans) they can get up to 100% of the principal balance cancelled after five years.
Eligibility
Full-time teacher in public school or nonprofit school system and one of the following:
Teacher in a school serving low-income families.
Special education teacher
Teacher of math, science, foreign languages, bilingual education, or shortage area determined by your state education agency.
Cancel up to 100% of a Federal Perkins Loan.
15% cancelled for the 1st year
15% cancelled for the 2nd year
20% cancelled for the 3rd year
20% cancelled for the 4th year
30% cancelled for the 5th year
Any amount forgiven will NOT be counted towards income.
State Programs
Some states have additional loan forgiveness programs for teachers and others. The easiest way to find this is to just Google “teacher forgiveness your state”
For example in Iowa, where I live, the state has the Iowa Scholar Program:
Teach Iowa Scholar Program (TIS)
Eligibility:
Graduate on/after January 1, 2013.
Graduate in the top 25% academically of your teaching program.
Full-time employment in Iowa in a designated shortage area.
Can receive up to $4,000 per year for up to 5 consecutive years.
Summary
Deciding how to pay back student loans can be difficult and confusing. Just getting the correct information can be a time-consuming process.
The student loan landscape is constantly changing. Programs have been added over recent years and more could be added in the future. Sometimes states add and drop programs depending on funding available or the political landscape. Some workplaces are now recognizing that student loans are an issue for their workers and are offering to pay back loans for their employees over time. Additionally, the current Trump administration has hinted at changing and/or dropping some of the federal programs outlined above.
I would also add that for many just paying your student loans down as fast as possible can be the simplest and best solution even if you are eligible for forgiveness programs. (Check THIS story out for some motivation!)
Everyone is unique. What is best for one person may be a bad option for another. Looking at your whole financial picture is important when making this decision. Considering the following may help you decide what is best for your specific case:
Current income.
Potential income growth.
Your comfort level of taxpayers potentially paying your loan forgiven amount.
Other debt obligations.
The political climate and possible changes to these programs.
Tax considerations.
Your tolerance of having debt.
If you would like help going through this process to make the best decision for your situation let us know.
