When Will Student Loan Forgiveness Programs Actually Start Paying?

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Federal student loan forgiveness is kind of like the Tooth Fairy as a child. You know that somehow you can end up with more cash, but figuring out how it works and when you’ll actually get the money can be elusive.

Unlike the Tooth Fairy, federal student loan forgiveness is very real. While the benefits have been waiting for those lucky enough to have their loans forgiven, the time for most federal student loan forgiveness is approaching fast.

What is federal student loan forgiveness?

Federal student loan forgiveness is a way for some student loan borrowers to have a portion of their loans forgiven (private loans are not eligible for forgiveness).

There are several different types of forgiveness programs, each designed to benefit different types of borrowers.

Public Service Loan Forgiveness

The Public Service Loan Forgiveness program allows those working in public-service careers to have the remainder of their loans forgiven after 10 years.

To qualify, borrowers must have a strong on-time payment history, hold a qualifying public service job for 10 years, and be on an income-based repayment plan. After making their 120th payment, the remaining student loan balance is forgiven.

Teacher Loan Forgiveness

For teachers, there is an even better possible deal. The Teacher Loan Forgiveness program kicks in at 5 years rather than 10 years. Different types of teachers receive varying amounts of loan forgiveness, but up to $17,500 may be forgiven after 5 years of teaching.

Forgiveness for income-driven payment plans

Income-driven repayment plans are built for those with the worst student loan debt burdens relative to their income.

Borrowers who are eligible may receive student loan forgiveness on their remaining balance after 20 years (240 payments) through the Pay as You Earn (PAYE) program.

Anyone with eligible federal student loans may qualify for the REPAYE program or Income-Based Repayment plan, which offer forgiveness after 20 or 25 years.

Learn more and compare income-driven repayment plans here.

Perkins loan forgiveness

Perkins loan borrowers have another list of criteria for federal student loan forgiveness. If you are a firefighter, police officer, librarian, or work in another qualifying occupation, you may be eligible for loan forgiveness after 10 years of eligible payments.

The Perkins Loans program expired on Sept. 30, 2017, so you must have taken out one of its loans before that date to be eligible.

When will loans be forgiven?

The first loans with a 120-month forgiveness window entered the Public Service Loan Forgiveness program in October 2007. That means the first loans will be forgiven in October 2017.

Business Insider examined federal public service employee student loan data for borrowers in this program and found that in the first year, $1 to $2 billion in federal student loans will be forgiven.

That same data set shows that the total annual forgiveness rate is expected to rise to around $5 to $7 billion per year by 2025 as more borrowers reach the 10-year mark on their student loans.

Forgiveness under the PAYE plan applies to borrowers as of 2007, and REPAYE as of 2015. That means PAYE borrowers will start to see relief in 2027, and REPAYE borrowers in 2035. Income-based repayment (IBR) began in 2009, but is also retroactive for some older loans.

If you have completed your 5 years of service under the Teacher Loan Forgiveness program, you can fill out an application for forgiveness here.

Beware the student loan forgiveness tax

It’s not all rainbows and unicorns for borrowers seeing their student loans forgiven in the future. There is a big tax consequence that borrowers must understand. Knowing what is coming can help prepare for a big tax bill.

Here are the basics on how federal student loan forgiveness plans impact your taxes. (Note that Public Service Loan Forgiveness and Teacher Loan Forgiveness programs are tax exempt, and the following does not apply in those scenarios.)

Forgiven student loans are treated the same as regular income on your tax return. Your lender will send you a tax form at the end of the year telling how much was forgiven, and that number is added to your paycheck and other income from the year to calculate your income.

Many of you will fall in the 25% tax bracket, so let’s use that as an example. If you are like the average borrower in the dataset above from Business Insider, you’ll have $8,000 forgiven. That means an extra $2,000 owed on your tax return come tax day!

If you have bigger loan balances thanks to private school tuition, out-of-state tuition, or dreaded medical school tuition, however, you could have a lot more forgiven.

If, for example, you have $100,000 forgiven through the PAYE program, that could translate to a $25,000 tax bill! You read that right. For $25,000, you might need a whole new personal loan to afford your taxes!

If you expect your student loans to be forgiven in the future, you should start a new savings fund just for the taxes. Do the math and figure out what amount you expect to be forgiven, then round up to be safe.

Calculate the number of months you have left until your forgiveness day. Divide your total forgiveness amount by the number of months to figure out how much you need to save per month to pay off your loans.

Plan, prepare, and get out of debt

With any student loan changes or strategies, always take the time to plan, understand the details, and prepare for your next step.

Whether that is consolidation, refinancing, or student loan forgiveness, always go into it with the best knowledge and preparation to avoid costly mistakes and surprises. If you do, you’ll be out of debt in no time.

Interested in refinancing student loans?

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1 Important Disclosures for Laurel Road.

Laurel Road Disclosures

  1. VARIABLE APR – APR is subject to increase after consummation. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes.

2 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student Loan RefinanceFixed rates from 3.999% APR to 7.804% APR (with AutoPay). Variable rates from 2.480% APR to 7.524% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.480% APR assumes current 1 month LIBOR rate of 2.07% plus 0.91% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score
  2. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

3 Important Disclosures for CommonBond.

CommonBond Disclosures

  1. Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). The following table displays the estimated monthly payment, total interest, and Annual Percentage Rates (APR) for a $10,000 loan. The Annual Percentage Rate (APR) shown for each in-school loan product reflects the accruing interest, the effect of one-time capitalization of interest at the end of a deferment period, a 2% origination fee, and the applicable Repayment Plan. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment, which is reflected in the interest rates and APRs displayed. Variable rates may increase after consummation. All variable rates are based on a 1-month LIBOR assumption of 2.08% effective July 25, 2018.

4 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Education Refinance Loan Rate DisclosureVariable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2018, the one-month LIBOR rate is 2.07%. Variable interest rates range from 2.72%-8.17% (2.72%-8.17% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.50%-8.69% (3.50% – 8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
  2. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensbank.com/EdRefinance, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
  3. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled, must be in repayment of their existing student loan(s) and must make the minimum number of payments after leaving school. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a co-signer who is a U.S. citizen or permanent resident. The co-signer (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a co-signer will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned.
  4. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  5. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
  6. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply.
  7. Average savings based on 18,113 actual customers who refinanced their federal and private student loans through our Education Refinance Loan between January 1, 2017 and December 31, 2017. The calculation is derived by averaging the monthly savings of Education Refinance Loan customers whose payments decreased after refinancing, which is calculated by taking the monthly student loan payments prior to refinancing minus the monthly student loan payments after refinancing. The borrower’s savings might vary based on the interest rates, balances and remaining repayment term of the loans they are seeking to refinance. The borrower’s overall repayment amount may be higher than the loans they are refinancing even if their monthly payments are lower.
2.57% – 5.87%Undergrad
& Graduate
Visit Earnest
2.80% – 6.38%1Undergrad
& Graduate
Visit Laurel Road
2.48% – 7.52%2Undergrad
& Graduate
Visit SoFi
2.47% – 7.99%Undergrad
& Graduate
Visit Lendkey
2.57% – 6.65%3Undergrad
& Graduate
Visit CommonBond
2.72% – 8.17%4Undergrad
& Graduate
Visit Citizens
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.