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The Basics of Student Loan Forgiveness and Repayment Programs

A Guide to Student Loan Cancellations, Taxability, and Directories by Profession

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One of the greatest opportunities for stressed out college graduates is student “loan forgiveness” or “loan repayment” programs. These programs offer to eliminate some or all of your student loans in return for choosing certain careers, military service, and even volunteer work.

Such programs can eliminate anywhere from a few thousand dollars to over $100,000 of student loans. Ironically, many of these programs receive a relatively small number of applications indicating that many graduates are completely unaware of these opportunities.

Loan Forgiveness vs. Loan Repayment

Student loan forgiveness programs are those backed by the Federal government and cover loans issued through Federal programs such as Stafford and Perkins Loans. When you participate in one of these programs, portions of your debt are literally “erased” from your lender’s books.

Student loan repayment programs, which are more widespread than forgiveness programs, may be used to eliminate any type of loan including private loans. Under these programs, you either receive additional funds that you can use to pay down your loan, or a payment is made directly to your lender by your employer.

Taxability of Student Loan Repayment and Forgiveness

The amount eliminated under loan forgiveness or repayment programs may be considered taxable income in the year received. In other words, if you have $5,000 in loans forgiven next year, that may increase your taxable income in the eyes of the IRS by an equivalent amount. While that’s never fun, it shouldn’t discourage you from using one of these programs since the benefit far outweighs the cost.

To avoid having your student loan forgiveness or employer repayments be subject to taxation, your student loan must specifically include provisions allowing it to be forgiven. These provisions must require you to work within certain professions, for certain employers, for a specified minimum amount of time.

Additionally, any loan repayments made under the National Health Services Corps (NHSC) Repayment Program or any state program eligible for funds from the Public Health Services Act are considered tax-free.

Directories of Student Loan Repayment and Forgiveness Programs:

There are literally hundreds of loan forgiveness programs available to graduates. Many times, professional associations within different industries will maintain a list of student loan repayment and forgiveness programs that apply to their profession.

Here’s a list, by profession, of some places to start researching the possibility of getting your student loans cancelled or repaid:

Teachers:

The American Federation of Teachers (state-by-state directory)

Medical, Nursing, and Mental Health Professionals:

The Association of Medical Colleges

Lawyers and Legal Professionals:

The American Bar Association

Volunteer Work:

AmeriCorps

Peace Corps

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