If you have federal student loans, you have one major benefit that you can take advantage of and that’s student loan forgiveness. Student loan forgiveness comes in two flavors for federal student loans. The first through Public Service Loan Forgiveness (PSLF) and the second through an income-driven repayment (IDR) plan.
Under PSLF, you have a repayment term of 10 years, whereas most IDR plans have a repayment term of 20 years. Many people think you must choose one or the other, but that’s not necessarily true. Read on to learn more about 10-year student loan forgiveness compared to student loan forgiveness after 20 years.
What is 10-year student loan forgiveness?
If you’re looking for the shortest route to getting your loans gone, you’ll want 10-year student loan forgiveness. The only option for this is through the PSLF program, which is available to both nonprofit and certain government workers who are eligible for 10-year student loan forgiveness after making 120 payments. To qualify, you must be on an IDR plan and pay as normal.
After serving for 10 years and making 120 payments, which don’t have to be consecutive, you can apply for student loan forgiveness. Under PSLF, the loans that are forgiven aren’t considered taxable income by Uncle Sam.
What is 20-year student loan forgiveness?
If you’re looking for 20-year student loan forgiveness, then you’ll want to opt for an income-driven repayment plan. The following plans have student loan forgiveness after 20 years:
- Revised Pay As You Earn (REPAYE) Plan — if loans are from obtaining undergraduate degree
- Pay As You Earn (PAYE) Plan
- Income-Based Repayment (IBR) Plan — if you’re a recent borrower (after July 1, 2014)
Under an IDR plan, your monthly payments are capped at a small percentage of your discretionary income, typically 10%. That way, your payments are affordable, and you can stay in good standing on your loans.
These IDR plans have a longer repayment term — in fact, double that of PSLF with 20 years. You must recertify each year to stay on track. To do so, fill out the Income-Driven Repayment Plan Request Form.
These plans don’t have any career requirements, so you can work in any job. Nearly all federal student loan borrowers are eligible for one of these options. After making payments for 20 years, talk to your loan servicer about student loan forgiveness.
10- vs. 20-year student loan forgiveness
You might feel like you have to make a big decision about whether to go with 10- or 20-year student loan forgiveness. But not exactly — here’s why.
Under the 10-year student loan forgiveness option, PSLF, you must be on an IDR plan. Under the 20-year student loan forgiveness option, you’re also on an IDR plan.
If for some reason you decide not to do the 10-year student loan forgiveness because you no longer want to work in public service, not all is lost. If you’re ineligible for PSLF in the long run, you still have options.
You can stay on an IDR plan and get student loan forgiveness after 20 years. If you go with the 20-year route but were eligible for PSLF, you’ll unfortunately end up paying two-thirds more because of tax consequences associated with forgiveness under IDR but not PSLF.
Which one is better?
From a time perspective, 10-year student loan forgiveness is a good option because you’re making payments for a shorter amount of time. That briefer time frame means paying less in interest overall. On top of that, you don’t have to pay taxes on the forgiven amount.
However, there are career requirements in order to go this route that are pretty important to consider. Having strings attached to your job is a lot to commit to. You shouldn’t base your job on student loan forgiveness.
If working in public service will make you miserable, you’re better off getting student loan forgiveness after 20 years with an IDR plan. Bonus – you’ll likely be able to make more money not working in public service.
On the other hand, if you plan on working in the public sector anyway, going after PSLF makes sense. Even if you change your mind mid-way, not all is lost if you stay on an income-driven plan.
You can simply stick to IDR, and if there’s still a balance after 20 years, you can get your loans forgiven. Just be sure to save up for taxes so you’re not in a financial bind. We recommend using Betterment, which is an investment brokerage, so you can get the best returns on the money you put away for taxes.
In the end, you don’t have to be firm and choose a 10-year student loan forgiveness plan over a 20-year one. Under both options, you’re on an income-driven repayment plan, so if PSLF doesn’t work out or you change your mind, there’s still another option.
Do you need help deciding how you should tackle your student loans? Get in touch with us to create a custom plan just for you.
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Are there any attorneys who deal with auditing PSLF service credits?
Sort of, none that specialize in only that, but the list of attorneys on this post is a good place to start https://www.studentloanplanner.com/student-loan-lawyer/
If you reach the 20 year mark since you’ve taken out federal student loans and some of that time was on one of their income based payment plans and at times they allowed zero monthly payments, does that period stop the clock for the 20 years? Do you have to contact them to have the balance forgiven or will they automatically process the loan forgiveness? Thank you.
It’s automatically processed since it’s listed in your master NSLDS file, that period counts if it was on an IDR payment plan and not forbearance
How does this work if you consolidated your loan. I Have been paying over 10 years thru a consolidation agency, when I called they said , my loan doesn’t qualify for that? Do i have any options.
Some types of loans don’t qualify, especially if you got your loan before 2010. Would definitely suggest talking to one of our student loan planners to get you on the right plan.
I did 2 IBR in 2015 on two different student loan one federal and one private. So if I did it after July 2014 it would be 20 years to go away, or what should I do? Currently I’m at $0 Payment because I’m not making much money with 4 kids.
Try our student loan calculator to see what would be the best path forward for you. Or, if you owe at least $20,000, I recommend a student loan consult so you know for sure you’re on the right path to forgiveness after 20 years.
I have a loan that is going to be 24 years old in August. I have made barely a dent in payments of the original loan of $20, 602. Interest is accruing at a ridiculous rate and my loan balance is now $166,462. I have made deferments and forbearances due to having to choose between mine and my child’s medications or school loans. My child is diabetic and I am bipolar. I am willing to pay the original balance and $10,000 interest but to never be able to pay this is affecting my credit drastically. Navient owns my loan currently and the minimum they want is $1244 per month so I am automatically deferred because I can’t even make an income-driven payment of $800 per month per their guidelines. Is there anything I can do to stop the interest adding up on this loan and find a solution to pay it off in a reasonable manner?
Your loan balance can grow significantly each time you defer or go into forbearance because of interest capitalization, and it looks like that’s what happened in your case. There’s a great article that explains it here. Instead of referring or asking for forbearance, setting up an income-driven repayment plan can make your monthly payments more affordable. I’d suggest you book a consult to get a plan, especially considering your balance is over $150k. Just click the “Get Help” link at the top of the site.