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Military Student Loan Forgiveness and Discharge Programs

January 26, 2012 By

More and more at GetOutOfDebt.org we are getting questions about how to get your student loans eliminated, forgiven, or discharged if you are in or served in the military.

It is absurdly ironic that members of the military can go into harm’s way, fight in combat and yet return home only to struggle to escape the invisible bondage of student loan debt.

However, there are some real options that can help you do this, but like the military, there are rules to follow and hoops to jump through.

[Article: Feds: Mortgage Companies Still Violating Military Families' Rights]

Public Service Loan Forgiveness Program

One overlooked program is the Public Service Loan Forgiveness Program. Under this program members of the military that have been employed by the military or a qualifying public service job for the last ten years may have their federal student loans FULLY discharged.

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Public service qualifying occupations include:

  • Emergency management,
  • Military service,
  • Public safety,
  • Law enforcement,
  • Public interest law services,
  • Early childhood education (including licensed or regulated childcare, Head Start, and state-funded pre-kindergarten),
  • Public service for individuals with disabilities and the elderly,
  • Public health (including nurses, nurse practitioners, nurses in a clinical setting, and full-time professionals engaged in health care practitioner occupations and health care support occupations),
  • Public education,
  • Public library services, and
  • School library or other school-based services.

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You need to be employed in these position at least full-time, which is considered to be at least 30 hours a week or what the employer considers to be full-time.

The benefit of this program is it allows you to discharge your debt after it has been consolidated for a low payment. You can use the online student loan consolidation calculator here.

The way the program works is that after making 120 monthly and on-time consolidated and reduced payments you remaining balance will be forgiven. – (Source: Public Student Loan Forgiveness Program Questions and Answers)

Not all student loans are eligible for consolidation. Private student loans are excluded. Loans that are eligible to be consolidated can be found here.

Direct Loan payments that qualify include:

  • The Income Based Repayment (IBR) Plan;
  • The Income Contingent Repayment (ICR) Plan;
  • The Standard Repayment Plan, with a 10-year repayment period; and
  • Any other Direct Loan repayment plan, but only payments that are at least equal to the monthly payment amount that would have been paid under the Standard Repayment Plan with a 10-year repayment period may be counted toward the required 120 monthly payments. (February 3, 2010)

And you may actually be able to have zero dollar loan payments count towards your required 120 payments. If you qualify for a zero monthly payment under the Income Based Repayment or Income Contingent Repayment programs then those payments, or lack thereof, will actually count. Pretty cool, huh?

For more information on this program read this publication by the U.S. Department of Education.

National Defense Student Loan Discharge

If you helped to pay for college with a National Defense Student Loan it may be partially discharged.

Recipients of a National Direct Student Loan and Perkins Loan may receive partial cancellation of their loan for their service in the United States Armed Forces if his/her military service was for a full year in a hostile fire/imminent danger pay area.

If you believe that you may qualify for cancellation of your loan(s) due to your military service as described above, you should send a copy of your DD214 (discharge form) and letter of explanation to the agency servicing your loan.

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Have More Tips and Information?

We want to continue to help and assist members of the military with information on dealing with student loans so please post any tips and information you can to help in the comments section, here.

This article was contributed by GetOutOfDebt.org, a site that provides free debt consolidation help and debt relief advice for people looking for answers. @GetOutOfDebtGuy

Source: Military Student Loan Forgiveness and Discharge Programs

Image: jamescollins, via Flickr.com

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Student Loan Default Realities

May 9, 2011 By

Next: Slide 2 of 9 »

Image by Cindy Maddera — Slide 2 of 9

It’s been famously identified as “good debt,” but if borrowers ever fall behind on their student loans, “good” can quickly turn into “evil.” And these days more borrowers in default are experiencing severe consequences. The federal government has recently increased legal action with the Department of Education reporting twice as many loan defaults to the Department of Justice between 2009 and 2010.

Tragic student loan stories pour in from Credit.com readers each week:

  • “With fees and penalties and interest accruing on interest, my $20,000 has ballooned into $85,000,” says Joseph.
  • “I have the order of the court in my favor and they still call, send notices, threaten collection and legal action and threaten to list me in default,” says “Still Hoping for Change.”
  • “My loan is up to $250,000 in an economy that has slowed down in drastic ways,” says Sophia.

For those considering taking on federal or private student loans—or considering giving up on the payments—take it from these folks: Your life could turn upside down if your debt gets out of hand.

I recently interviewed Mark Kantrowitz, Publisher of Fastweb.com and FinAid.org and the author of the new book Secrets to Winning a Scholarship on the consequences following student loan delinquency and default. He offered extensive details and a thorough rundown of unfortunate events…

Next: Slide 2 of 9 »

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Student Loan Default Realities

May 9, 2011 By

Next: Slide 2 of 9 »

Image by Cindy Maddera — Slide 2 of 9

It’s been famously identified as “good debt,” but if borrowers ever fall behind on their student loans, “good” can quickly turn into “evil.” And these days more borrowers in default are experiencing severe consequences. The federal government has recently increased legal action with the Department of Education reporting twice as many loan defaults to the Department of Justice between 2009 and 2010.

Tragic student loan stories pour in from Credit.com readers each week:

  • “With fees and penalties and interest accruing on interest, my $20,000 has ballooned into $85,000,” says Joseph.
  • “I have the order of the court in my favor and they still call, send notices, threaten collection and legal action and threaten to list me in default,” says “Still Hoping for Change.”
  • “My loan is up to $250,000 in an economy that has slowed down in drastic ways,” says Sophia.

For those considering taking on federal or private student loans—or considering giving up on the payments—take it from these folks: Your life could turn upside down if your debt gets out of hand.

I recently interviewed Mark Kantrowitz, Publisher of Fastweb.com and FinAid.org and the author of the new book Secrets to Winning a Scholarship on the consequences following student loan delinquency and default. He offered extensive details and a thorough rundown of unfortunate events…

Next: Slide 2 of 9 »

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Manage Student Loans With Your Smart Phone? Eh.

May 6, 2011 By

Smartphone_Johan_Larsson_CCFlickrThere are some great mobile apps and phone-friendly websites sites that help us better manage our money and credit, many of which I’ve written about for Credit.com. But I’m not convinced a new mobile service intended to help borrowers manage their student loans is really going to help stem the growing rate of student loan defaults.

Here’s the news: The American Education Services and FedLoan Servicing, now allows borrowers manage and review their student loans and make payments via their smart phones by hopping onto MyFedLoan.org or AESSuccess.org.

[Related Article: Boost Your Credit Score: 7 Helpful Apps]

Here’s the reality: Students are graduating with an average $24,000 in student loans. The amount of student loan debt is—for the first time ever—more than our country’s total amount of credit card debt. The weak job market is making it tough for graduates to find work, and those who are lucky to find work still have a tough time making ends meet, as the cost of living rises faster than wages. It’s no surprise then that the student loan default from 2008-2009 was about 7 percent, compared to 5.2% in 2006—an extremely conservative number in my view. Many more are falling behind on their payments. According to new research from the Department of Education, more than a fourth of borrowers surveyed had fallen behind on their student loans but hadn’t defaulted.

The ability to pay back student loans is not for lack of technology. It’s for lack of money.

Of course, the companies involved don’t pretend their technology is going to solve all the world’s problems with student loans. They’re likely just trying to keep up with the times and do what they can to address what they know is a crisis, which is respectable.

[Related Article: Student Loan Default & Delinquency Rates “Worrisome”]

If only there was more effort placed on creating real, effective solutions to help struggling borrowers either modify their student loans or, I dare say, get a bailout. Federal student loans do have some flexibility, but private loans are still likely to turn into a nightmare if a borrower can’t pay them back. Neither federal nor private student loans are dismissible in a bankruptcy unless you can prove extreme, dire financial circumstance—and even then it’s up for debate.

Image: Johan Larsson, via Flickr.com

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Reader Mail: Getting Out of Private Student Loan Hell

August 31, 2010 By

Following my recent post on how to ease your student loan burden, a reader wrote in asking for advice on how to better manage her private student loans, which are a bigger annoyance in some ways than federal loans.


           Dear Farnoosh,

I was hoping you would have some advice for people like me who have about 50K in private student loans. Yes I know, it’s crazy. My monthly payments are almost $500 a month (that could have been a really nice savings account) but I’m BARELY making the minimum payments. Please, please, please tell me there is something I can do to help my newly engaged, looking to buy a house, then get married but have no money-self.

P.S. This was all acquired from my culinary degree, which coincidentally the school from which I graduated no longer has a culinary program!!

Greatly Appreciated, Nicole


Dear Nicole,

To answer your question, there is something you can do. In fact, there are several things you can do. But before I give you advice, I need you to accept the following: This debt is only your responsibility and you must make paying it down a top priority. Realize that at the end of the day, unfortunately, no one is obligated to help you ease this burden. I know you’re frustrated and regret taking on this debt, but if you want to turn this ship around you need to take control of the situation and raise your commitment level to these loans. Otherwise you risk putting a great deal more at risk, including your ability to afford a wedding and own a home.

Here’s my honest advice, which has less to do with actually modifying your loans and more to do with modifying your lifestyle and making some key changes in your income and budget. Bottom line: No one cares more about your financial situation than you.

Boost income. Since you can barely make the minimum payments, it’s fair to say that you have an income problem. You have a $500-a-month dilemma. So what can you do in your spare time to bring in that money? With your culinary degree can you cater a couple of extra parties a month? Host private cooking classes? What else can you easily and quickly do? Babysit? Tutor? Freelance food and recipe articles? Embrace the fact that you’re young and educated. The job market is rough right now but by taking on an entrepreneurial spirit you can find a way to add a revenue stream or two.

Reduce spending. While you’re looking for ways to make money, take a long and hard look at your spending. What’s coming in and what’s going out? Why are you barely able to make the minimum on your student loans? What’s eating up your income on a monthly basis? It may not be one category of spending. It could be a collection of expenses from eating out to your rent to your gym membership to your cable bill. You need to make some adjustments. Substituting your gym membership, for example, for free runs in the park or free online workout classes, can save you $75 a month right there. This probably isn’t the advice you wanted to hear, but it’s the one sure-fire way you can personally take control of the situation.

Speak with your lender. If you haven’t done so already, it may be worth speaking to your lender about any alternatives to the current loan program you are in. Is there a way to stretch the repayment period? Or consolidate your loans to one loan with a reduced interest rate? You won’t know unless you ask.

Don’t miss any payments. The biggest danger of all is falling behind. I’ve seen scenarios where a $10,000 private loan balloons to $30,000 because of late or totally neglected monthly payments. If all you can afford is the monthly minimum right now, then stick with the minimum. Once you start making more money and reduce your spending you’ll have extra savings to play. At that point, put more money toward the principal of the loan.

Farnoosh Torabi – Credit.com Personal Finance Contributor, nationally recognized author, expert and television host. Her first book, You're So Money, is an acclaimed tell-all for young adults searching for financial independence. Her new book Psych Yourself Rich, gives readers the mindset and discipline to build their financial life.
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