Loan forgiveness is a trade-off. It’s about incentivizing graduates to work in low paying or otherwise undesirable positions in exchange for erasing or significantly reducing their student loan balance. Without these programs, important community institutions would be severely understaffed.
If you’re a teacher or education student reading this, those criteria probably sound familiar.
Many school districts struggle to fully staff their schools, especially when it comes to certain positions. Loan forgiveness programs are one of the best ways for them to attract job candidates and retain them for long enough to make an impact.
Teachers have several options when it comes to loan forgiveness. Here’s what you should know about each one.
Teacher Loan Forgiveness
The Teacher Loan Forgiveness Program is the only federal loan forgiveness program specifically designed for teachers. Math or science teachers who teach in secondary schools or special education teachers can have up to $17,500 worth of loans forgiven. Any other kind of teacher can only receive up to $5,000 worth of loan forgiveness.
The program has strict requirements. Teachers must hold a license or certification in their state and teach for five consecutive years in a school that primarily serves low-income students. A list of eligible schools is available here.
Teachers qualify even if they work at different schools for each of the five years, but each of those schools must be eligible.
Teacher Loan Forgiveness is only available for Direct Subsidized and Unsubsidized Loans, as well as Subsidized and Unsubsidized Federal Stafford Loans. Perkins loans are not eligible.
If you have a Direct Consolidation Loan or a Federal Consolidation Loan that includes a Perkins loan, that portion won’t be eligible for Teacher Loan Forgiveness. PLUS or graduate school loans are also not eligible for Teacher Loan Forgiveness.
Public Service Loan Forgiveness
The Public Service Loan Forgiveness Program (PSLF) is arguably the best forgiveness option for teachers. Unlike the Teacher Loan Forgiveness program, borrowers don’t have to work consecutive years to qualify. This is especially helpful for teachers who take a year or two off.
Teachers can work for an elementary or secondary school, in either a public or private school setting. They must work at least 30 hours a week to qualify. After 120 qualifying payments, they can apply to have their remaining loan balance forgiven. There is no limit on how much will be discharged, and teachers won’t owe taxes on the forgiven amount.
Only Direct Loans are eligible for PSLF. If you have FFEL or Perkins Loans, you’ll have to consolidate them into a Direct Consolidation Loan to qualify.
Teachers should submit the PSLF employer certification form every year, which will verify the employer and calculate how many qualifying payments have been made.
PSLF can be used with Teacher Loan Forgiveness, but borrowers will only receive credit for one program at a time. If $5,000 of your loans is forgiven after five years through Teacher Loan Forgiveness, those five years’ worth of payments will not count toward PSLF.
While working toward PSLF, teachers will have to choose from one of the income-driven repayment plans. These options will lower your monthly payment.
Perkins Loan Teacher Cancellation
Teachers with Perkins loans can have their loan balance entirely discharged. To be eligible, they must work full-time in a school with low-income children or as a special education teacher. Teachers can also become eligible by teaching a subject that has a shortage of teachers in their state.
Private school teachers and those who have two part-time teaching jobs also qualify. Preschool and kindergarten teachers may only be eligible if their state considers those grades to be part of elementary education.
Unlike PSLF or the Teacher Loan Forgiveness program, teachers can earn partial loan forgiveness. They’ll get 100% forgiveness after five years of service.
Here’s how much will be forgiven each year:
- 15% forgiven after one year of work
- 15% forgiven after two years of work
- 20% forgiven after three years of work
- 20% forgiven after four years of work
- 30% forgiven after five years of work
State Forgiveness Programs
Your state may have its own teacher forgiveness program. Go here to see what options are available. You can also try Googling your state and “teacher forgiveness program” and see what comes up. You may have to teach in an underserved area or teach a specific subject to qualify.
Options for Private Student Loans
Teachers with private loans rarely have access to loan forgiveness. Here are some options available to them:
Refinance private loans
If you want to save money on private loans, your best option is to refinance to a lower interest rate.
Private lenders often require a credit score of 650 or higher to qualify for a refinance. Some lenders may also have an income requirement, but this depends on the specific lender. For example, LendKey accepts borrowers with low salaries.
When you refinance private loans, make sure you understand the term you’re signing up for. For example, if you have five years left on your private loans and refinance to a 10-year term, you may end up paying more interest over the life of the loan because the term is doubled.
If you can afford it, keep making the same payments as you were before. Assuming you haven’t significantly changed your budget or lost your source of income, this should be doable. Keeping the same payment rate will let you repay the loan faster and save on interest.
Take out a home equity loan
If you’re a homeowner, you can withdraw extra equity from your house and use it to repay your student loans. Generally, you’ll need to have 80% or more equity in the home to qualify.
Home equity loans may have lower interest rates and longer terms than private student loans. It may also be easier to qualify for a home equity loan because the bank has collateral behind it.
The downside to this strategy is that if you default on a home equity loan, the bank may repossess your house. Comparatively, refinancing your private student loans has much lower stakes.