Student loans are provided by the Federal government and private lenders in order to encourage the younger generation to improve their quality of life by pursuing higher education. The Federal govt. provides Stafford Loans and Parent PLUS Loans under the Federal Family Education Loan (FFEL) Program and Federal Direct Loan Program. Direct loans, as the name suggests, can be obtained directly from the Federal government.
On the other hand, FFEL loans are provided by banks, credit unions, and other lenders participating in the FFEL program. The Parent PLUS loans are offered to parents who are willing to fund their child's education. In addition to these loans, Federal Perkins loans are offered to deserving students, who are unable to afford the interest payments on Stafford loans. Perkins loans are meant to cover the cost of post secondary education, and are provided by schools participating in this program. They carry a low rate of interest.
These programs are typically designed to facilitate easy repayment. The terms and conditions of repayment are generally favorable to the students. However, recession has resulted in a slump in the job market. Loans that could have previously been paid off in easy installments have now reached the stage of default. Considering this, the Federal government has introduced a new forgiveness program for Federal Direct loans. This is in addition to the already existing programs such as Stafford, Perkins, and PLUS loans. It should be noted that, such programs are not applicable to defaulted loans.
For Direct Loans: Stafford and PLUS
Public Service Loan Forgiveness: It is intended to forgive student loans that were obtained under the Federal Direct Loan Program, after 10 years of full-time 'qualified employment'. Working for the State and Federal government, rendering military service, working for non-profit organizations or volunteering for AmeriCorps, Peace Corps, and VISTA are considered as qualified employment. During the period of employment, the individual is expected to pay principal and interest on the loan.
An ex-student can opt to repay the loan using one of the following repayment plans: Level, Graduated, Income Sensitive, or Extended Plan. The income-based repayment plan may be the most convenient way of repaying the amount. This plan came into effect on July 1, 2009. It considers the size and the income of a family before determining the amount of repayment. It allows a person to repay a maximum of 15% of his gross salary as interest and principal repayment. At the end of 10 years, if the student still owes money, the remaining loan balance is forgiven by the government.
FFELs and Perkins Loans
Child Care Provider Loan Forgiveness Program: A highly trained child care provider may be eligible for 100% cancellation on the loans administered under the FFEL and the Direct Loan Program.
Military Service or Volunteer Work: Joining the military, volunteering for AmeriCorps, VISTA (Volunteers in Service to America), or Peace Corps may result in partial or a complete forgiveness. Volunteering for Peace Corps may result in canceling up to 15% of Perkins loans on a yearly basis and an ex-student may be eligible for a deferment on Stafford loans. The Army National Guard offers repayment facility for students joining the armed forces after college. In fact, the military may cover up to 33½% of the remaining student loan balance per year of active service.
Teachers, Nurses, and Doctors: A teacher may become eligible for loan forgiveness by teaching children belonging to low-income groups. In fact, it is possible to obtain a 100% cancellation on a Perkins loan. In case of Stafford loans, a complete cancellation may not be possible. However, a substantial reduction in the amount of the loan that is to be repaid can be expected. Teachers teaching subjects like special education, mathematics, science, and foreign languages are also eligible to seek forgiveness. Bilingual teachers and those providing instructions to disabled children may be eligible for such programs.
Nurses working in low-income areas, where there is a shortage of medical professionals, are also eligible. In fact, serving for two years in such areas may result in canceling 60% of the loan. Doctors who serve in 'under-served' areas are also eligible and doctors conducting medical research on certain specific areas can also qualify for the same.
Lawyers and Social Workers: Lawyers working in the interest of the public are eligible after a period of 10 years. Social workers are eligible for 100% loan cancellation after 5 years of public service. In this case, the social worker is expected to have worked with high-risk profile people or people from low-income groups.
Other Situations: Disability, death, bankruptcy, and closing down of an education institution will result in 100% cancellation of a student loan.
Federal student loans may be forgiven, if a person is willing to impart his knowledge for the general good and well-being of the public. However, as far as possible, a student should try to take the help of consolidation programs and repay the amount.