Confronting student loan debt through public service options

Learn more about public service options on federal student loans.

In 2007, congress created the Public Service Loan Forgiveness Program to encourage individuals to enter and continue to work full time in public service jobs. No debt will be forgiven through this program until 2017. Since the enactment of this program there has been businesses that have popped up that claim and charge for “loan forgiveness”. This is a scam. There are rare instances when a student loan can be cancelled. That is addressed later in the article.

There are only two ways in which student debt is forgiven: remaining debts from repayment plans and Public Service/TeacherForgiveness. The borrower must make 120 payments on their student loans without the loan going into default. It must be paired with a qualifing repayment plan to truly receive forgiveness. The qualifying repayment programs are: Pay as You Earn, Income-Based Repayment, and Income-Contingent Repayment. Once a borrower fulfills their obligation working in an approved public service job, their balance owed will be forgiven. Only Federal Direct Student Loans are eligible for the Public Services Forgiveness Program.

There are no forgiveness and repayment plans available for private student loans. Private loans have fewer options to avoid default and there is almost no deferment options. When they do grant a deferment, documentation to support the request is required. It is very important to read the promissory note of each private student loan to see what your options are, if any.

Cancellation of student loans is very difficult to receive and only applies to federally funded student loans. The following are events that may make loan cancellation an option:

  • Closed school discharge: If the college closes while the borrower was in attendance or up to 90 days after withdrawal.
  • Unpaid refunds: If a borrower withdrew and the college owed a refund but never returned the funds to lender.
  • False certification discharge: If the college improperly certified the borrower’s ability to benefit from a higher education or the borrower is a victim of identity theft.
  • Death discharge: If the borrower (or student for whom a parent borrowed a Parent PLUS loan) dies.
  • Total and permanent disability discharge: If a doctor certifies that the borrower is totally and permanently disabled, or if a veteran is unemployed due to a service-connected condition they may be eligible for this discharge. 

Michigan State University Extension offers a number of educational programs including programs on financial management and housing education. Visit the  MI Money Health website where there are a number of educational materials and resources available for free.

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