Different Types of Repayment Plans for Student Loan Forgiveness

College graduates have already received plenty of help from President Joe Biden’s administration in student loan forgiveness of federal student loans. The U.S. Department of Education has canceled about $3 billion in student loans since January 2021 when Biden took office.
More federal help may be coming. Until then, borrowers may want to put their financial fate in their own hands by using repayment plans that already exist that offer student loan forgiveness after meeting certain criteria. Do volunteer work or work in a medical field, for example, and your student loan may be forgiven in 10 years or so if you pay 10% of your disposable income toward the loans.

Repayment plans for student loan forgiveness

Here are some of the main repayment plans for student loan forgiveness.
PlanBest for
Income-Based RepaymentLoans after July 1, 2014
Pay As You EarnLoans from 2007 to current
Revised Pay As You EarnDirect Loan borrowers
Income-Contingent RepaymentLow income
Income-Sensitive RepaymentLow-paying jobs
Public Service Loan ForgivenessPublic service jobs
AmeriCorps Education AwardVolunteers
Faculty Loan RepaymentHealth profession faculty students
Teacher Loan ForgivenessTeachers in low-income schools
Perkins Loan CancellationTeachers, public service workers
Federal Employee Student Loan RepaymentFederal workers
John R. JusticeLawyers
National Institutes of HealthHealth researchers
Air Force JAGAir Force lawyers
Army College Loan RepaymentMilitary occupational specialties
Navy Student Loan RepaymentSailors
National Guard Student Loan RepaymentGuardsman for 6 years

Income-based repayment plans

Income-based repayment plans are tied to each borrower’s student loan repayment plan. This can be especially helpful if your student loan payments are high compared to your income. When tied to your income, they can be affordable and should be lower than what you’re paying now, no matter what the repayment period is.
Each plan forgives any remaining balance at the end of the plan, provided the borrower qualifies and follows each plan’s rules.
If they qualify, the grad can apply for a plan. If you’re interested in applying for one, contact your lender or go to the Federal Student Aid website and click on “Manage Loans,” and then click on “Qualify for Loan Forgiveness.”
Many plans require paying a certain percentage of the borrower’s discretionary income, such as 10% of it. How much discretionary income you have is based on a formula such as your family size and income tax returns. A loan simulator run by the federal government can help you figure out how much you’d be expected to pay in income-driven plans, among others.
Here are some of these income-contingent repayment plans:

Income-Based Repayment

Called IBR for short, the Income-Based Repayment Plan requires paying 10% of your discretionary income if you’re a new borrower on or after July 1, 2014, for 20 years. It rises to 15% for older loans, and the loan is forgiven in 25 years.
Either way, the loan repayment won’t exceed the payment of the 10-year standard repayment plan, and your loan will be forgiven at the end of the term.

Pay As You Earn

Called PAYE for short, the Pay As You Earn plan requires paying up to 10% of your discretionary income, and the loan is forgiven after 20 years. Loans made as far back as 2007 are eligible.

Revised Pay As You Earn

Also called RePAYE, it’s a modified version of PAYE that’s available to borrowers after Dec. 17, 2015. It’s open to all Direct Loan borrowers.
Payments are for up to 10% of discretionary income, and the loan is forgiven after 20 years. It also has an interest subsidy to help cover 50% of the interest when the new payments can’t keep up with the accruing interest.

Income-Contingent Repayment

The Income-Contingent Repayment Plan, or ICR, doesn’t have initial income requirements, and any eligible user can make payments through the plan.
Payments are either 20% of discretionary income, or what you’d pay on a repayment plan with a fixed payment over 12 years, adjusted to your income.
ICR plans to forgive loans after 25 years.
Your income amount must be submitted every year. If your income rises high enough, your payment could increase to being higher than the 10-year standard repayment plan.

Income-Sensitive Repayment

Income-sensitive repayment is a way to help borrowers with lower-paying jobs afford their monthly loan payments for loans serviced by lenders in the Federal Family Education Loan Program, or FFELP.
Monthly payments increase or decrease, based on your annual income. The amount paid is based on a fixed percentage of a borrower’s gross monthly income, between 4% and 25%. They continue for up to 10 years.

Career-Based Student Loan Forgiveness Plans

Another category of repayment plans for student loan forgiveness involves working in certain careers for several years when the loan is forgiven. These are usually public service jobs, such as teaching and police work, or in government jobs or not-for-profit work. Here are some of them:

Public Service Loan Forgiveness

The Public Service Loan Forgiveness Program, or PSLF, provides student loan forgiveness after 10 years of payments. That adds up to 120 consecutive monthly payments while working full-time for a qualifying employer.
To qualify for PSLF, you must work for a federal, state, local or tribal government or not-for-profit organization. Other eligible professions include being in the U.S. military, AmeriCorps, Peace Corps, education, and public health services. Loans are repaid in an income-driven repayment plan.

AmeriCorps Education Award

Volunteer with any of the AmeriCorps organizations for one year and you may be eligible for aid up to the value of a Pell Grant. For the 2021-22 award year, the maximum Pell Grant award amount is $6,495.

Faculty Loan Repayment Program

The Faculty Loan Repayment Program is run by the Health Resource and Services Administration, or HRSA, to recruit and retain health profession faculty members by getting students to pursue faculty roles.
Up to $40,000 in student loan repayment is provided, along with money to offset the tax burden of the program.

Teacher Loan Forgiveness Program

Teachers who work full-time for five complete and consecutive academic years in a low-income school or educational service agency, among other qualifications, may be eligible for up to $17,500 in student loan forgiveness in this program.

Perkins Loan Cancellation

All or part of a Perkins Loan can be canceled if a borrower works in volunteer service or as a teacher under certain conditions. These include working at a school serving low-income families; working with children with disabilities; or as a teacher in the fields of math, science, foreign language, bilingual education, or another field that has a shortage of qualified teachers in the state where the applicant works.
Other professions that may qualify for a Perkins Loan cancellation include:
  • Military
  • Child or family services agency
  • College faculty
  • Firefighter
  • Law enforcement officer
  • Nurse
  • Public defender
  • Volunteer in Americorps VISTA or Peace Corps

Federal Employee Student Loan Repayment Program

This federal program allows agencies to repay federally insured student loans as a way to recruit or retain workers, up to $10,000 per employee in a calendar year and not more than $60,000 for any one employee.
Workers receiving this benefit must sign a service agreement to stay in the paying agency for at least three years. Applicants can only sign up for the program when they’re hired, not months later.

John R. Justice

The John R. Justice Student Loan Repayment Program, or JRJ, helps state public defenders and state prosecutors who agree to stay in their jobs for at least three years by paying up to $10,000 per calendar year and up to $60,000 total per attorney.

National Institutes of Health

There are five NIH loan forgiveness programs. Up to 25% of the eligible education debt, up to $35,000 per year, is repaid by the NIH for health researchers who agree to conduct qualifying research supported by a nonprofit or any government agency in the United States for two years.

U.S. Military Student Loan Forgiveness Options

Several student loan forgiveness options are available for members of the U.S. military. Students may have heard about them as an incentive when they joined the military. Here are some programs that the various military branches offer:

Air Force

The Air Force JAG student loan repayment program offers up to $65,000 in student loan forgiveness for joining the Judge Advocate General.

Army

The Army College Loan Repayment program forgives up to $65,000 of student loan debt for members of the Army’s military occupational specialties, or MOS. To qualify, soldiers must give up their Post 9/11 GI Bill.
The Navy Student Loan Repayment program pays up to $65,000 of federally guaranteed student loans. Three annual payments are made during the first three years of service. Enrollees must sign up for the program when they enlist.

National Guard

The National Guard Student Loan Repayment Program offers loan forgiveness of up to $50,000 for qualifying federal loans for members who enlist for at least six years, among other conditions.

Summary of repayment plans

PlanTop benefit
Income-Based Repayment10-15% of income paid
Pay As You Earn10% of income paid
Revised Pay As You Earn10% of income paid
Income-Contingent RepaymentCan last only 12 years
Income-Sensitive RepaymentAs low as 4% of income paid
Public Service Loan ForgivenessLoan forgiven after 10 years
AmeriCorps Education Award$6,495
Faculty Loan RepaymentUp to $40,000
Teacher Loan Forgiveness$17,500 forgiven
Perkins Loan CancellationEntire loan can be forgiven
Federal Employee program$60,000
John R. Justice$60,000 for public defenders, prosecutors
National Institutes of Health$35,000 annually for health workers
Air Force College JAG$65,000
Army College LoanArmy College Loan$65,000
Navy Student Loan Repayment$65,000
National Guard Student Loan$50,000

Is more federal aid coming

You never know for sure what Congress is going to, or if the president will approve a bill, but each has announced plans to offer more student loan debt forgiveness and repayment options.
Federal legislators have a plan to cancel up to $50,000 for each student loan borrower, affecting an estimated 34 million people. The president has said he’s committed to canceling $10,000 for each federal student loan borrower.
Biden has also proposed making community college tuition-free, cutting undergraduate federal student loan payments in half, doubling awards for Pell Grants, and expanding student loan debt forgiveness.
For example, the president has proposed requiring undergrads with federal student loans to be required to pay only 5% of their discretionary income if they have more than $25,000 in student loans.
Those proposals are just that — proposals. Until they’re enacted, borrowers may want to look for other student loan forgiveness programs that already exist and that they can use.

Will private loans be forgiven?

Federal student loans are the most common kind of student loans, but some students who don’t qualify may have private loans. There aren’t any programs set up to help forgive private student loans. Private student loans are like a car loan or mortgage. A repayment plan is set up, and if you don’t repay or miss a few payments, the debt could become delinquent and go into default.
That means that debt collectors could come knocking on your door, or at least sending you letters demanding payment. Cars and homes are collateral for those loans, and a private student loan borrower’s collateral is their earnings. The lender could sue you in court for payment, and a judgment against you may put some of your paycheck toward repaying the loan. One way to lower the payments on a private student loan is to refinance it, such as through a direct consolidation loan. A lower interest rate or longer repayment term can result in a lower monthly payment, though taking more time to repay it could increase the total cost. Some private lenders may offer assistance programs, such as delaying payments if you’ve lost your job. If you have both federal and private student loans, you may save money by setting up an income-based repayment plan on your federal loans and using that savings to pay the private loans.
How do I apply?
Applying for student loan forgiveness is usually pretty straightforward. Once you’ve found a loan forgiveness program, such as through the Department of Education, asking your loan servicer, or elsewhere, you fill out the form and submit it to your lender. The Federal Student Aid website, studentaid.gov, is a good place to start looking for loan forgiveness programs. Once you meet the program requirements, such as keeping up payments, then your loans are automatically forgiven when the loan term ends.
Do I have to pay taxes on any forgiven loans?
Some student loan forgiveness programs did require paying taxes on the amount forgiven as taxable income, but President Biden changed that when he signed the American Recovery Act. It made all student loan forgiveness and discharges tax-free, no matter what type of loan program was used. This provision is effective through Dec. 31, 2025. State taxes, however, may still be charged.

The bottom line

Federal student loan payments were suspended during much of the coronavirus pandemic, but that forbearance is scheduled to end soon and payments could resume Oct. 1, 2020. If you expect to have difficulty making payments again, now is the time to look into your options before the repayment clock starts again.
President Biden could extend the break, though you’ll likely have to start paying back your federal student loans sometimes. Finding a loan forgiveness program now could make that a lot easier for you.
The average student loan debt depends on your age, with Americans 24 and younger owing $15,000 on average, compared to $33,000 for ages 25-34, and $42,000 for ages 35-49. A little relief for any outstanding balance could make the rest of your life a lot more affordable.

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