The hard work for many from the Class of 2016 has just begun — paying down student loan debt.
The average student debt burden for new college grads hit a record of about $37,000 in April 2016, according to Cappex.com, a college and scholarship-information web site. With loan payments coming due, and an estimated 55 percent of Millennials worried about their ability to repay their loans, who could blame grads for dreaming about debt relief?
And some may be in luck. In fact, under certain circumstances, borrowers might be able to secure help in repaying their loans, or have them forgiven or discharged, through a variety of government and employer programs.
That’s great news for those who qualify, but it’s important to keep in mind that student loans are a serious responsibility and you’re obligated to repay your loans even if you don’t graduate, can’t find a job, or are dissatisfied with the education you paid for with your loan. While student debt relief opportunities might be out there, it would be a mistake to take on debt and blindly assume it can be erased down the road.
“These programs are limited in terms of financial benefits and eligibility,” noted Mark Kantrowitz, Cappex.com’s publisher. But “it’s worthwhile looking into loan forgiveness. You might be lucky enough to qualify.”
Some student loan forgiveness programs are taxable, while others are not. In general, student loan forgiveness is excluded from taxable income if the forgiveness is contingent upon the student working for a specific number of years in certain professions. It’s important to understand the tax implications of any offering you’re considering.
Read on to learn more about student loan forgiveness and student loan repayment assistance:
Teach Your Way To Loan Forgiveness
The federal government wants to encourage people to become teachers and it offers incentives to those who do so with two loan forgiveness programs.
Under the Teacher Loan Forgiveness Program, teachers who work full-time for five years in certain schools that serve low-income families, and who meet other qualifications, might be eligible for forgiveness of up to $17,500. You must have Federal Direct Loans or Federal Stafford Loans to qualify. An application can be found here.
Teachers who have a different type of student loan, a Federal Perkins Loan, might be able to have 100% of that loan forgiven. Federal Perkins Loans are aimed at students of exceptional financial need. With this type of loan, the school is the lender and borrowers make their payments to the school.
To see if your Perkins Loan qualifies for cancellation, you must apply to the school that made the loan or to the loan servicer chosen by the school.
Your Employer Might Be Able To Help You Out
Move over 401(k). There’s a new perk in town: student loan debt repayment help.
A small, but growing number of private sector employers are offering to help employees pay back their loans as part of their benefits package. Payments are doled out over time and are generally capped at around $10,000.
Likewise, the U.S. government offers student loan debt repayment assistance to government workers. The Federal Student Loan Repayment program awards $10,000 a year, up to a total of $60,000, toward the payment of a borrower’s student loans. In exchange, the borrower has to work for a qualifying government agency for at least three years. All 15 cabinet-level U.S. government offices participate in the program.
Both private sector companies and the U.S. government see student loan assistance as a recruitment and retention tool at a time when young workers are increasingly concerned about the burden of student loan debt.
In a survey of 1,000 borrowers conducted last year by Iontuition, a student loan management company, 55 percent of the loan holders said that they would rather see their employer health benefit contributions go toward paying off student loans, while 49 percent said they would prefer student loan payment contributions over a 401(k).
While it’s always good to pay down your debt, if your employer also offers a 401(k) plan and matching contributions, it’s a good idea to try to balance both paying that debt and investing in your future to set yourself up for a secure financial future.
Uncle Sam Offers A Hand To Public Service Workers
Are you thinking about pursuing a career in public service? If so, you might qualify for the Public Service Loan Forgiveness Program (PSLF).
Under PSLF, borrowers who work in public service jobs outside the 15 cabinet-level U.S. government offices involved in the Federal Student Loan Repayment program, such as employees at not-for-profit organizations, can have the balance of their federal loans forgiven if they meet a number of criteria, including numerous years of loan repayments to qualify for the forgiveness of the remaining debt.
A borrower must make 120 monthly student loan payments under a qualifying repayment plan. In addition, the borrower has to be working full-time in a qualifying government or not-for-profit job while making these payments. The student loan must be a Federal Direct Loan and it can’t be in default.
There are other restrictions: A borrower’s first and subsequent student loan payments have to have been made after Oct. 1, 2007. The first loan forgiveness will not be available until October 2017. The application for this program is under development.
For those who qualify, PSLF can provide a nice lift. But it’s important to remember that this program requires a ten-year commitment to a job in public service. If that’s not your dream career, this path might not be worth pursuing.
“I would never encourage a person to choose a career just to get this,” said Kristin Bhaumik, assistant director for special programs at University of Michigan.
To learn more about PSLF, contact your loan servicer or read this fact sheet, prepared by the U.S. Department of Education.
For Those Facing Hardship, Debt Discharge Could Be An Option
Sometimes borrowers can’t repay their debts because of circumstances beyond their control. Under certain conditions, such as the death of a borrower, or if the borrower becomes permanently disabled, a federal student loan might be discharged.
“These types of discharges are for traumatic life events,” Bhaumik said.
Though it’s rare, sometimes student loan debt can be discharged in bankruptcy. This would only happen if a bankruptcy court decided that repaying your student loans would impose undue burdens on you and your dependents.
Click here to see if you might qualify for a student debt discharge, or call your loan servicer.