Federal Student Loan Forgiveness

The Federal Government waivers the student loan taken under some conditions. This is called the federal student loan forgiveness program. There are various factors which are taken into account before the act is actually executed. If voluntary work (including medicinal service or military service) has been performed, the student loan is waived off. The act is normally admissible for student loans which have been obtained through Federal Family Educational Loan Program (FFELP) and Federal Direct Loans (FDL).

An Act called the College Cost Reduction and Access Act (CCRA) has been brought into existence in 2007. It has been made by the Congress for high-debt, low-income graduates, by which the loan can be repaid in accordance with the salary. In addition to the above provision, there is another one whereby, government servants and employees working for non-profit organizations can avail loan forgiveness. There are two main parts of the College Cost Reduction and Access Act. They have been listed below.

» Income Based Repayment (IBR)
With this provision, the Equated Monthly Installment (EMI) is reduced on the federal guaranteed loans. This provision came into existence in July 2009. Students who want to apply for IBR, should do so within 2 months of their graduation. Students who have graduated before the ordinance of this act, won’t be able to opt for it immediately. They will either have to wait, or opt for the Income-Contingent Repayment (ICR) plan, till they can opt for IBR. Although the EMI for ICP is higher than that of IBR, students who opt for IBR have their EMI equated to 15% of the discretionary income, in contrast to the actual repayment amount. This new EMI is many times lesser than the original EMI. Although a hike in the salary leads to hike in the EMI, it is gradual and never steep.

» Loan Forgiveness for Public Service
Government servants who have served full-time for a period of 10 years, and have also made 120 repayments to the Federal Direct Loan can ask for loan forgiveness. Teachers also come under the purview of this provision. However, they also have to serve for a period of 10 years, before they become eligible. The unpaid amount, inclusive of the principal amount and the interest accumulated, is forgiven by the federal government.

They are also required to fulfill the criterion of teaching in low-income schools for a period of 10 years. The act is also applicable for teachers who teach subjects, for which, there is a shortage of teachers. Such subjects include mathematics, science, foreign languages, or special subjects like that for disabled children, etc.

Law school and medical school graduates also come under the purview of this act. They are supposed to serve in public interest, or in areas where there is a shortage of professionals.

The Peace Corp volunteers are those who serve for 2 years, and make a difference to the lives of people in more than 70 developing nations. Volunteers who work in the field of illiteracy, hunger, or homelessness eradication are also eligible for forgiveness. Students who serve in AmeriCorps are paid a stipend along with a certain amount, which goes towards loan repayment.

Students who opt to work in the Army National Guard, qualify for the Student Loan Repayment Program. This program can be compared to the federal student loan forgiveness program, although they are two different programs.

Following are other methods through which the loan can be waived:

  • Students who were aided through the Michael Murphy scholarship for law and allied subjects, can avail a waiver of one-fifth each year working in the field of law and allied fields in Alaska.
  • Employees of Maryland state and local government can opt for the loan repayment program if they choose to study law, medicine, social work, or occupational psychology, and currently earn less than $40,000 a year.

The Federal government helps the citizens in one or more ways, so that they can lead a peaceful and stress-free life. There are clauses which need to be fulfilled for student debt to be forgiven, but looking at the amount that is eventually waived off, these clauses are not very difficult to fulfill.