The Federal Government will cancel all or part of an educational loan under certain circumstances. This program is called Loan Forgiveness.
To qualify, you must:
- Perform volunteer work;
- Perform military service;
- Teach or practice medicine in certain types of communities
- Meet other criteria specified by the forgiveness program.
To find out whether you qualify for loan forgiveness, talk to the human resources staff at your employer.
Some loan forgiveness programs are taxable and some are not. Under current law, the amount forgiven generally represents taxable income for income tax purposes in the year it is written off. There are, however, a few exceptions. Generally, student loan forgiveness is excluded from income if the forgiveness is contingent upon the student working for a specific number of years in certain professions.
Public service loan forgiveness, teacher loan forgiveness, law school loan repayment assistance programs and the National Health Service Corps Loan Repayment Program are not taxable. Loan discharges for closed schools, false certification, unpaid refunds, and death and disability are considered taxable income. The forgiveness of the remaining balance under income-contingent repayment and income-based repayment after 25 years in repayment is considered taxable income.
These volunteer organizations offer loan forgiveness:
- AmeriCorps. Serve for 12 months and receive up to $7400 in stipends plus $4725 to be used towards your loan. Call 1-800-942-2677.
- Peace Corps. Volunteers may apply for deferment of Stafford, Perkins and Consolidation loans and partial cancellation of Perkins Loans (15% for each year of service, up to 70% in total). Volunteers make a real difference in the lives of real people with two years of service in more than 70 developing countries. Contact the Peace Corps at 1111 20th St., NW, Washington, DC 20526 or call 1-800-424-8580 or 1-202-692-1845.
- Volunteers in Service to America (VISTA). Volunteer with private, non-profit groups that help eradicate hunger, homelessness, poverty and illiteracy. Provide 1700 hours of service and receive $4725. Call 1-800-942-2677 or 1-202-606-5000.
Students who are in the Army National Guard may be eligible for their Student Loan Repayment Program, which offers up to $10,000. (Note, the military and veterans’ associations provide many scholarships and tuition assistance programs. See the section on Military Aid for details.)
Students who become full-time teachers in an elementary or secondary school that serves students from low-income families can have a portion of their Perkins Loan forgiven under The National Defense Education Act. This program forgives 15% of your loan for the first and second years of teaching service, 20% for the third and fourth, and 30% for the fifth. Contact your school district’s administration to see which schools are eligible.
Mississippi teachers who currently have their Alternate Route Teaching License and teach in a shortage area may be eligible for the Teacher Loan Repayment program. Visit the Mississippi Office of State Student Financial Aid web site or call 1-601-432-6997.
The American Federation of Teachers maintains a list of other loan forgiveness programs for teachers.
Legal and Medical Studies
Many law schools forgive the loans of students who serve in public interest or non-profit positions. For more information, contact Equal Justice Works (formerly the National Association for Public Interest Law) at 2120 L Street, NW, Suite 450, Washington, DC 20037-1541 (phone 1-202-466-3686 or fax 1-202-429-9766). The American Bar Association (ABA) also has a summary of Loan Repayment Assistance Programs (LRAP), Directory of Law School Loan Repayment Assistance Programs (LRAP) and State Loan Repayment Assistance Programs.
The US Department of Health and Human Services offers loan forgiveness programs through the National Health Service Corps and the Nursing Education Loan Repayment Program. These programs offer loan forgiveness to physicians and registered nurses who agree to practice for a set number of years in areas that lack adequate medical care (including remote and/or economically depressed regions).
The US National Institutes of Health’s NIH Loan Repayment Programs repays up to $35,000/year of student loan debt for US citizens who are conducting clinical medical research.
The US Department of Agriculture’s Veterinary Medicine Loan Repayment Program (VMLRP) offers loan forgiveness of $25,000 per year for three years for veterinarians who commit to work in a veterinary shortage area for three years. The application deadline is June 30.
If you’re a California resident, contact the Office of Statewide Health Planning and Development (State Loan Repayment Program, 400 R Street, Room 330, Sacramento, CA 95811; 1-916-326-3745). Other states may have similar programs.
Many hospitals and private healthcare facilities use loan forgiveness to recruit occupational and physical therapists. Contact the American Physical Therapy Association (1111 North Fairfax St., Alexandria, VA 22314-1488; 1-800-999-2782) or the American Occupational Therapy Association (P.O. Box 31220, 47200 Montgomery Lane, Bethesda, MD 20824-1220; 1-301-652-2682).
Other loan repayment programs for medical school students include:
- Nicholas J. Pisacano MD Memorial Foundation Inc. (American Board of Family Practice)
- Disadvantaged Health Professions Faculty Loan Repayment Program
- Indian Health Service (IHS) Loan Repayment Program
- US Air Force, Army, and Navy Financial Assistance Programs
- The American Association of Medical Colleges (AAMC) maintains a database of state and other loan repayment programs for medical school students.
Other Paths to Forgiveness
Students who receive the Michael Murphy Loan to study law enforcement, law, probation and parole, penology, or other related fields are eligible to work off one-fifth per year as a State Trooper (or related law enforcement official) in Alaska. Contact the Alaska State Troopers, Director’s Office Scholarship Fund, 5700 East Tudor Rd., Anchorage, AK 99507; 1-907-269-5511.
Maryland state and local government employees who earn less than $40,000 gross annually may be eligible for a loan assistance/repayment program to study law, nursing, physical and occupational therapy, social work and education. Contact the Maryland State Scholarship Administration, 16 Francis St., Annapolis, MD 21401; 1-410-974-2971 x146.
Federal Government Loan Forgiveness Programs
Perkins loans and Stafford Loans can be cancelled for full-time service as a teacher in a designated elementary or secondary school serving students from low-income families, special education teacher (includes teaching children with disabilities in a public or other nonprofit elementary or secondary school), qualified professional provider of early intervention services for the disabled, teacher of math, science, foreign languages, bilingual education, or other fields designated as teacher shortage areas, employee of a public or non-profit child or family service agency providing services to high-risk children and their families from low-income communities, nurse or medical technician, law enforcement or corrections officer, staff member in the educational component of a Head Start Program, service as a Vista or Peace Corps Volunteer and service in the Armed Forces (up to 50% in areas of hostilities or imminent danger).
See also the US Department of Education’s pages on Cancellation/Deferment Options for Teachers.
The US Department of Education maintains a database of low-income schools eligible for teacher loan cancellation for Perkins and Stafford loans.
Secondary school math and science teachers, and elementary/secondary school special education teachers who commit to working in high-need schools for five years can obtain up to $17,500 in Stafford loan forgiveness. They must teach full time for five consecutive years in a qualifying low-income school and be “highly qualified”. (The Taxpayer-Teacher Protection Act of 2004, HR 5186, increased the amount of forgiveness from $5,000 to $17,500 on October 30, 2004.)
Visit the HRSA web site for information on Nursing Education Loan Repayment
The Federal Student Loan Repayment Program allows federal agencies to establish loan forgiveness programs to help recruit and retain employees. This is technically a loan repayment program and not a loan forgiveness program, as the agencies make payments directly to the loan holder and the payments represent taxable income to the employee. The agencies can repay up to $10,000 in Federal student loans per employee per calendar year, with a cumulative maximum of $60,000 per employee. Employees must agree to work for the agency for at least 3 years. For more information, see the Student Loan Repayment Program FAQ. This program is authorized by 5 USC 5379 (alternate link) and 5 CFR 537. Federal Employee Student Loan Assistance Act (P.L. 108-123, 11/11/03) increased the repayment limits to $10,000 per employee per year and $60,000 per employee cumulative.