What You Should Know About Student Loan Forgiveness Programs
Worried about how much you'll owe Uncle Sam after graduation? Loan forgiveness programs may help.
- (opens in new tab)
- (opens in new tab)
- (opens in new tab)
- Newsletter sign up Newsletter
Two-thirds of students who receive bachelor's degrees leave college with debt in tow. Depending on the amount owed (the average among borrowers is $26,600), it can take decades to pay off the outstanding balance.
See Our Slide Show: 9 Ways to Reduce Your Student Loan Debt
For help with paying down your student loans more aggressively, consider the many programs that reduce your debt in exchange for relocating to specific regions and/or providing needed services in underserved communities. From Kansas to Chad, and in fields from nursing to teaching, there are programs to help graduates slash college debt. But the programs aren’t always easy to get into -- nor easy to stick with. Here are nine things you should know:
1. There are two broad categories of loan-forgiveness programs. You can enroll in the federal government's Public Service Loan Forgiveness program and/or apply for a loan repayment assistance program (LRAP) run by an organization or state. Know the differences: Public Service Loan Forgiveness requires you to make ten years of monthly payments toward your loan via an income-based repayment plan while working in a qualified public-service job before the remaining balance will be canceled or "forgiven." To qualify for one of the income-based repayment plans, you must have high debt relative to your income.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
An LRAP, in contrast, tends to require dedicated service to a specific organization for a relatively short period of time in exchange for a limited amount of loan forgiveness.
2. You can double-dip. You can join an LRAP such as AmeriCorps or the Peace Corps and receive loan-forgiveness benefits at the end of your program (after one year for AmeriCorps, two for the Peace Corps), and you can count your time as eligible employment toward the ten-year public-service requirement for the federal government's Public Service Loan Forgiveness.
3. Only federal loans are eligible for forgiveness in most of these programs. Few programs allow their money to go toward private loans.
4. You should apply early. Start assessing programs before the beginning of your senior year. Deadlines vary, but Teach for America accepts submissions through February 20, and the rolling application process for AmeriCorps takes about six months. The Peace Corps requires more records and medical clearance, so aim to submit your application seven to 12 months before you hope to start working.
5. It's a big commitment. In most of these programs, you'll spend two years working to serve the greater good -- teaching in Detroit's struggling schools, improving agricultural practices in Senegal or providing mental-health services in rural Minnesota. Some programs, such as AmeriCorps Vista and the Peace Corps, explicitly prohibit you from holding another job while you participate in the program. Usually, you'll have the option to extend your work in the program beyond the two-year term, which tends to reap even more loan-repayment help.
6. Yes, you'll earn a salary. In addition to the partial (or sometimes full) payoff of your loans, most LRAPs provide a small stipend (Teach for America is the highest, with a maximum salary of $51,000) and health benefits.
7. There’s no partial credit. If you don't fulfill the entire commitment, you won't earn any money toward paying off your student loans. You might even face penalties from employers such as the National Institutes of Health research program and Nurse Corps if you breach your contract. In 2010, 12.4% of TFA teachers left the program after the first year.
8. You'll pay taxes on the loan-forgiveness awards. AmeriCorps, for instance, awards a lump sum equal to the largest Pell Grant you could receive ($5,645 in 2013). You won't actually receive a check, but you can make payments toward your loan directly from your profile on the AmeriCorps Web site. You have seven years to apply the award. Any amount you use is considered taxable income that year. For example, a young adult in the 15% tax bracket who applies $5,645 in loan-forgiveness awards toward a loan will trigger $847 in taxes due the following spring.
9. You may not get accepted. Most programs accept only 15% to 30% of their applicants, with Teach for America and the Nurse Corps Scholarship Program taking even fewer candidates. Other programs aren't as restrictive: Kansas's Rural Opportunity Zones relocation program, for example, awards a maximum of $15,000 for living in one of 50 rural counties for five years and simply requests proof of a degree from an accredited college or university and an outstanding student-loan balance.
-
-
Best Defensive Stocks to Buy Now
Investors are concerned about the financial sector and the economy, but these best defensive stocks have risk-averse traits that can help calm those fears.
By Mark R. Hake, CFA • Published
-
Being Rich vs. Being Wealthy: What’s the Difference?
It’s all about where you put the zeros — having a large bank account isn’t the same as having zero regrets and focusing on what brings you joy.
By Andrew Rosen, CFP®, CEP • Published
-
Best Cash Back Credit Cards March 2023
Smart Buying Looking for the credit card that pays the most cash back? These lenders may pay hundreds of dollars, with minimum hassle.
By Lisa Gerstner • Last updated
-
Student Loan Forgiveness Blocked For Now Due to Court Rulings
Biden's student loan debt forgiveness program is on hold until the U.S. Supreme Court weighs in.
By Kelley R. Taylor • Published
-
I-Bond Rate Is 6.89% for Next Six Months
Investing for Income If you missed out on the opportunity to buy I-bonds at their recent high, don’t despair. The new rate is still good, and even has a little sweetener built in.
By David Muhlbaum • Last updated
-
What Are I-Bonds?
savings bonds Inflation has made Series I savings bonds enormously popular with risk-averse investors. How do they work?
By Lisa Gerstner • Last updated
-
529 Plan Contribution Deadlines
Many states have year-end deadlines for making 529 college savings plan contributions.
By Kelley R. Taylor • Last updated
-
Your Guide to Open Enrollment 2023
Employee Benefits Health care costs continue to climb, but subsidies will make some plans more affordable.
By Rivan V. Stinson • Published
-
Watch Out for Flood-Damaged Cars from Hurricane Ian
Buying & Leasing a Car In the wake of Hurricane Ian, more flood-damaged cars may hit the market. Car prices may rise further because of increased demand as well.
By Bob Niedt • Last updated
-
What You Need to Know About Life Insurance Settlements
life insurance If your life insurance payments don’t seem worth it anymore, consider these options for keeping the value.
By David Rodeck • Published