If you are struggling with your student loans, you may have run across something called “Obama Student Loan Forgiveness.”
Even though it was debunked back in 2014, Obama Student Loan Forgiveness still comes up in internet searches. The myth was born after a satirical website ran a post about an Obama loan forgiveness program, and social media quickly spread what was literally “fake news.”
But don’t worry — there are numerous legitimate forgiveness programs out there. Below you’ll find some of the real student loan forgiveness options that you may qualify for if you have federal loans:
- Public Service Loan Forgiveness
- Teacher Loan Forgiveness
- Other profession-specific forgiveness options
- Cancellation or student loan discharge
- Income-driven repayment plans
The Public Service Loan Forgiveness program (PSLF) can forgive federal student loan balances for borrowers who have made 10 years of eligible student loan payments.
You need to understand that eligibility for Public Service Loan Forgiveness is complicated. Here are a few of the main qualifiers:
- You must have borrowed with federal Direct loans (including Direct PLUS loans). If you have Perkins or Federal Family Education loans (FFEL), you’ll need to turn them into a Direct Consolidation loan first.
- You must make 120 qualifying payments while working for an elgible employer.
- Only payments made on or after Oct. 1, 2007, (when the program began) count toward the 120 needed.
Your specific job is in the public service category is irrelevant, but where you are employed matters. Eligible employers are:
- Government entities at any level — federal, state, local or tribal.
- Nonprofits that are tax-exempt under 501(c)(3) of the Internal Revenue Code.
- Other non-profits that aren’t exempt from the previous tax code but that provide certain types of public service.
Unlike with some federal student loan forgiveness plans, you do not need to pay taxes on the amount forgiven, though, of course, there’s no guarantee that this won’t change in the future.
So far, very few applicants for PSLF have received forgiveness, with less than 1% getting their loans wiped away as of the end of 2018.
In late 2019, the American Federation of Teachers filed a lawsuit against the federal government claiming that “pervasive errors” in administering the program directly resulted in denials to almost all borrowers who applied.
Fred Amrein, the founder and CEO of student loan information and management site PayForEd said that the success rate for the public service loan forgiveness program could increase going forward, partly because the rules have been stable since supplemental funding was approved in 2018.
“There are more and more borrowers who will apply for public service forgiveness,” Amrein said.
Under the federal Teacher Loan Forgiveness Program, borrowers may be eligible for up to $17,500 in loan forgiveness for federal Direct loans.
The main requirements for this loan forgiveness program are:
- Teaching full-time for five complete and consecutive academic years.
- Being a “highly qualified teacher,” which means you have earned at least a bachelor’s degree and received your full state certification as a teacher.
- Working at a public school that serves low-income students.
It is possible for a borrower, who is eligible for both the Teacher Loan Forgiveness and Public Service Loan Forgiveness, to receive both. To do this, however, you would have to use different years of service for each forgiveness program and apply for one at a time.
Smart borrowers should consider selecting the teacher loan forgiveness approach first for five years, and then pursuing PSLF next for the following 10 years, according to Mark Kantrowitz, publisher at Savingforcollege.com.
Because Teacher Loan Forgiveness happens after only five years, it makes sense to use this option first. This strategy could also be a good choice if you aren’t sure you will stick with teaching for an entire decade, as PSLF requires.
Note also that there are other forgiveness programs for teachers, even if you don’t qualify for this one. For example, if you have loans under the now-defunct Perkins program, you may be able to get them canceled if you teach low-income students, serve as a special-education teacher, or teach in a STEM field or foreign/bilingual education.
Teachers and public servants aren’t the only ones who have student loan forgiveness programs especially for them. For example, check out these guides for some of the programs other professions may qualify for:
There are certain cases — such as when you don’t get your money’s worth from your education — that allow for special forgiveness options. These are the main ones:
Total and permanent disability discharge
You can have your debt discharged if you can show you have a total and permanent disability. To qualify, you must submit medical proof from one of three sources:
- S. Department of Veteran Affairs
- Social Security Administration
- Your physician
Closed school discharge
If your school closes down, you may be able to have your federal student debt thrown out. To qualify, you would need to meet one of these requirements:
- You were enrolled in the school when it closed.
- You were on an approved leave of absence.
- The school closed within 120 days of when you withdrew.
Borrower defense to repayment
Borrowers may be eligible for forgiveness of federal student loans if their school misled them or engaged in misconduct in violation of certain state laws. That said, this rule — which only dates to 2016 — is among the most contentious of these options, becoming the subject of debate and some legal actions.
Recent changes to the rule will make some requirements more strict. For instance, starting in July 2020, you will need to apply within three years of leaving school, rather than six years as is currently the case.
In addition to the forgiveness programs above, you can also get at least a portion of your college debt eliminated if you join an income-driven repayment plan. These are designed mainly to reduce your monthly payments, but each comes with a term of 20 or 25 years, after which any remaining balance is erased.
Note that income-driven repayment plans are free to join at any time — just tell your federal student loan servicer.
Here are the four main income-driven repayment options:
|Comparing Income-Driven Repayment Plans|
|IDR Plan||Payment Amount||Repayment Period|
|IBR||Generally 10% to 15% of discretionary income||20 or 25 years|
|ICR||Generally 0% of discretionary income||25 years|
|PAYE||Generally 10% of discretionary income with cap||20 years|
|REPAYE||Generally 10% of discretionary income with no cap||20 or 25 years|
Pay As You Earn (PAYE)
If students are eligible for PAYE as a repayment, that is typically the best, Kantrowitz said. “PAYE has the lowest payments of any of the income-driven repayment plans,” he said, as your monthly bill is capped at 10% of your discretionary income, and the term runs 20 years. There’s also no penalty if your spouse earns a high income, so long as you file your income tax separately.
To qualify however, you must have no student loans older than Oct. 1, 2007, and must have received a Direct Loan on or after Oct. 1, 2011.
Revised Pay As You Earn (REPAYE)
If you’re not eligible for PAYE, you might still be able to join the similar REPAYE program. The repayment period is 20 years for undergraduate loans and 25 years for graduate loans.
It’s easier to qualify for REPAYE than for PAYE, as older loans are eligible, and you can join even if your payments on the standard 10-year plan would be less — see this guide for details on the differences between the two plans.
Income-based repayment (IBR)
IBR is another possibility, and like PAYE (but unlike REPAYE), there is no “marriage penalty.” Your monthly payment will be 10% of your discretionary income if your loan was taken out on July 1, 2014, or later. Otherwise, payments for older loans will be based on 15% of discretionary income.
income contingent repayment (ICR)
This is the oldest plan, launched back in 1994. Although Kantrowitz says the newer programs offer better terms, there are currently about 660,000 people in ICR, and some are now nearing their 25 year mark of repayment.
Finding your best student loan forgiveness option
While Obama student loan forgiveness may be just a figment of the internet’s imagination, there are legitimate forgiveness programs out there (some of which did in fact start during the Obama administration).
And if none of the possibilities above seem feasible, make sure to check our database of student loan repayment assistance programs, including special opportunities depending on your profession or what state you live in, and our full guide to student loan forgiveness.
Paul Sisolak contributed to this report.