If you’re wondering how to get out of paying your student loans back in full, you’ve probably looked into student loan debt forgiveness at one point.
However, student loan debt forgiveness is entirely dependent on eligibility.
And it’s more limited than you might think. It’s only applicable to federal student loans, not private loans. What’s more, eligibility depends how much you’re making and how much you owe.
Here are a few things to keep in mind if you’re banking on student loan debt forgiveness as an option for repayment.
How does student loan debt forgiveness work?
In most cases, you must first qualify for an Income-Based Repayment Plan (IBR Plan).
This is a plan with monthly payments based on a percentage of your income. After completing every scheduled payment over the duration of the loan term, only the balance that’s left over will be forgiven.
Under IBR Plans, student loan forgiveness eligibility doesn’t kick in for 20 years. However, most of these plans have shorter loan terms than that. So your loans will most likely be paid off before forgiveness is even an option.
Additionally, you’ll be exceeding the 10-year standard repayment plan term. Therefore, you’ll be paying more towards interest without the forgiveness payoff in the end.
Who is eligible for student loan debt forgiveness?
Here’s a breakdown of various income levels and debt amounts that do and don’t qualify for forgiveness, using our Income-Based Repayment Calculator.
Note that all of these scenarios are based on:
- Having some loans disbursed before July 2014
- Having up to four people in the family (you, your spouse, and children who receive more than half of their support from you)
- Living in the continental U.S
- An annual income growth of five percent
Average income, average debt
Let’s say you’re making $50,556 a year.
That’s the average salary projected for college graduates this year according to a survey from the National Association of Colleges and Employers.
And, you’re saddled with $37,172 in student loans, the average debt for the class of 2016.
Let’s assume all of those loans are direct undergraduate loans at an average weighted interest rate of 4.00% APR.
If you are a single person, you would not qualify for an IBR Plan or forgiveness.
If there are two-to-four people in the family, you would qualify for an IBR Plan but not forgiveness, as the loan would be paid off by the time you’re eligible.
High income, high debt
Let’s say you’re making $70,000 a year with $100,000 in direct undergraduate and graduate loans at an average weighted interest rate of 5.00% APR.
Whether it’s just you or up to four people in the family, you would qualify for the IBR Plan.
However, you would not be eligible for forgiveness. The loan would be paid off by the time you’re eligible.
High income, low debt
Let’s say you’re earning $70,000 a year with just $20,000 in direct undergraduate loans. These student loans have an average weighted interest rate of 4.00% APR.
Whether it’s just you or up to four people in the family, you would not qualify for an IBR Plan or forgiveness.
Low income, high debt
Let’s say you’re making just $30,000 a year. And, you have $50,000 in direct undergraduate loans at an average weighted interest rate of 4.00% APR.
If you’re single, you would qualify for an IBR Plan but not forgiveness.
But, if your family has two-to-four people, you would qualify for both an IBR Plan and forgiveness.
The student loan debt forgiveness amount would range from $2,682 for two people, and up to $64,055 if you have four people in the family.
Examples by profession
Doctor. Let’s say you’re earning $200,000 a year with $183,000 in direct undergraduate and graduate loans. All of which are at an average weighted interest rate of 5.00% APR.
You would not qualify for an IBR Plan or forgiveness, whether it’s just you or up to four people in the family.
Social worker. Let’s say you’re earning $41,000 a year with $60,000 in direct undergraduate and graduate loans at an average weighted interest rate of 5.00% APR.
If it’s just you or up to three people in your family, you would qualify for an IBR Plan but not forgiveness.
However, if you have four people, though, you would qualify for forgiveness, up to $26,126.
Teacher. Let’s say you are a middle-school teacher earning an average salary of $45,105 a year, according to Payscale. You have $35,000 in direct undergraduate loans at an average weighted interest rate of 4.00% APR.
If you’re single or have up to four people in the family, you would qualify for an IBR Plan but not forgiveness.
Do the math yourself
It’s easy with our IBR Calculator. You can make adjustments based on the following:
- Whether the loan was disbursed before or after July 2014
- Your annual income
- Number of people in your family
- Debt amount
- Interest rate
- Whether you live in the continental U.S., Alaska, or Hawaii
- Annual income growth
The calculator doesn’t just tell you whether you qualify for an IBR plan and forgiveness. It also tells you:
- Your first month’s IBR payment
- Your last month’s IBR payment
- Total amount you’ll pay
- The number of months you’ll be paying on it
- Total forgiveness you’ll receive (if any).
Don’t qualify for student loan debt loan forgiveness?
There are some situations in which you have other student loan debt forgiveness options.
You could be eligible if you work in public service or file bankruptcy. Additionally, if you have a permanent disability, have your college commit fraud against you, or your college closes down before you could complete your degree program.
However, student loan debt forgiveness is a long shot. So before you start counting on it, do your homework first to see how much of a possibility it really is.
If student loan debt forgiveness doesn’t look likely, your best bet is sticking to the standard 10-year repayment plan. Or, pay your student loans off faster, if you can.
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