Paying off student loans can be stressful on a teacher’s salary.
Fortunately, there are several federal student loan forgiveness programs available for educators. The top three federal programs are Teacher Loan Forgiveness, Public Service Loan Forgiveness and Perkins Loan Cancellation for Teachers.
Three factors can help you decide which program is best for you:
- The type of federal student loans you have
- The amount of federal student loan debt you have
- If your teaching position qualifies for the program
If you have Federal Perkins loans, then Federal Perkins Loan Cancellation for Teachers is most likely your best option.
If you don’t have Perkins loans, then either PSLF or Teacher Loan Forgiveness are likely the most beneficial.
PSLF is typically your best option if you have a substantial amount of student loan debt.
Teacher Loan Forgiveness could be your preferred program if you have a relatively smaller amount of federal student loan debt and your teaching position fits the stricter qualification requirements.
Public Service Loan Forgiveness (PSLF)
PSLF forgives your remaining federal student loan balance after 10 years of making qualifying payments through an income-driven repayment plan (which lowers your monthly payments based off your income) and while working for an eligible government agency or nonprofit. A large benefit of the program is that when this balance is forgiven, it is NOT taxable to you.
Only federal Direct loans qualify for forgiveness with PSLF. Check out this help tool from the Federal Student Aid’s website to see if your loans qualify.
PSLF includes the broadest employment requirements of available programs for teachers. Qualifying jobs are widespread across the U.S. because all teaching positions at public elementary, secondary and post-secondary colleges and universities qualify. Private elementary, secondary and post-secondary schools also qualify if they are not-for-profit.
The most recent study done in 2017 from the National Center for Education Statistics (NCES) showed that in 2015-2016, there were roughly 98,000 operational public elementary and secondary schools in the U.S. The study also showed that that roughly 55% of colleges were qualifying public or private not-for-profit during that period.
If you have the right loans and a qualifying job, you will also have to choose an income-driven repayment plan. You can learn more about IDR plans and the pick the best plan for you in Part 1 of this series.
Forgiveness example*: A teacher with a $50,000 federal student loan balance starts qualifying for PSLF with a salary of $50,000, which gradually grows to $63,000 by the end of their 10 years. They end up with total payments of about $30,700 during the 10 years and about $40,200 forgiven at the end of their 10 years. By qualifying for PSLF, they saved roughly $32,900 instead of paying off the loan on the standard 10-year repayment plan, which would have cost them total estimated payments of ~$63,600.
*Note: This forgiveness example includes the assumptions of a single borrower with one Direct Unsubsidized loan with an interest rate of 5% who has no dependents. This borrower is using either PAYE, New IBR or REPAYE as their IDR plan.
Federal Teacher Loan Forgiveness
Teacher Loan Forgiveness forgives up to $17,500 toward your Direct Federal student loans or your Federal Stafford loans in exchange for five years of teaching in a low-income school. Teacher Loan Forgiveness has much stricter employment requirements than PSLF.
To be eligible, you must have been working full-time as a highly qualified teacher for five full and consecutive academic years. You also must have been teaching at a low-income elementary, secondary or educational service agency. The loans you are seeking forgiveness for must have been borrowed before the end of your five years of consecutive teaching.
If you are eligible, the amount of forgiveness you receive depends on the subject you are teaching. If you teach mathematics or science at a secondary school level or special education at either elementary or secondary level, you can receive up to $17,500. If you teach any other subject, you can receive up to $5,000.
After your five consecutive years of qualifying teaching, you can apply for teacher loan forgiveness by filling out the teacher loan forgiveness application and submitting it to your loan servicer.
There is the option to receive both Teacher Loan Forgiveness and PSLF, but you cannot use the same years of teaching service toward both. In most cases, if eventually planning on PSLF, the best route would be to aim for PSLF right away.
A great benefit to Teacher Loan Forgiveness is that your awarded student loan funding is NOT taxable to you, just like PSLF.
Federal Perkins Loan Cancellation for Teachers
If you have Federal Perkins loans, then Federal Perkins Loan Cancellation for Teachers could be your best route since Perkins loans don’t qualify for PSLF (unless consolidated correctly) or Teacher Loan Forgiveness. Up to 100% of your Federal Perkins loans can be canceled if you work full-time in a public or not-for-profit elementary or secondary school and meet one of the following requirements:
- You are a teacher in a low-income school
- You are a special education teacher
- You teach mathematics, science or a foreign language or teach any other subject the state education agency recognizes has a shortage of qualified teachers in your state
Unlike Teacher Loan Forgiveness, with Perkins Loan Cancellation you do not need to be certified or licensed to receive benefits, but your school must consider you a full-time professional.
If you are eligible for Perkins Loan Cancellation, your loan balance will have up to a certain percentage canceled:
- 15% canceled for the first academic year of service
- 15% canceled for the second academic year of service
- 20% canceled for the third academic year of service
- 20% canceled for the fourth academic year of service
- 30% canceled for the fifth academic year of service
An additional benefit is that, each year, the canceled amount includes the interest accrued in that year.
To apply for cancelation of a Federal Perkins Loan, the application must be made to the school that made the loan or the school’s Perkins loan servicer. Each servicer or school will be able to provide forms to apply for cancelation.
Lastly, before you choose one of these three, you should look into what state-sponsored student loan forgiveness programs are offered for teachers where you live. Check out the American Federation of Teachers website to search for state and local programs you might qualify for.
You can also contact Wipfli Financial for help navigating planning strategies to maximize the benefits available to you through these student loan forgiveness programs.