Written By Kevin Payne
Michigan student loan borrowers might qualify for loan forgiveness programs that can drastically cut down their out-of-pocket repayment balance. The average student loan debt in Michigan is $36,345, with more than 7% of borrowers carrying more than $100,000 in federal student loan debt.
Working toward a loan forgiveness program can help reduce your out-of-pocket student debt. Fortunately for Michigan residents, there are state and federal government programs available for pursuing student loan forgiveness.
Student loan forgiveness in Michigan
Michigan only offers a couple of student loan forgiveness and repayment assistance programs for state residents. Here’s a look at the student loan forgiveness and loan repayment programs available.
Michigan State Loan Repayment Program
The Michigan State Loan Repayment Program (MSLRP) provides student loan assistance for eligible Michigan-based primary medical, dental and mental healthcare providers. To qualify, participants must commit to two-year service obligations, working a minimum of 40 hours per week (for no less than 45 weeks a year).
You must also work at an eligible nonprofit healthcare clinic within a designated health professional shortage area. MSLRP provides up to $200,000 in tax-free loan repayment over a period of up to eight years.
University of Michigan Law School loan repayment assistance program
Graduates of the University of Michigan Law School pursuing modest-paying law positions can apply for the school's Loan Repayment Assistance Program (LRAP). Graduates must first enroll in an eligible IDR plan. After that, you can apply for the LRAP each year to receive benefits the following year.
Depending on your income, you might be eligible to have all or part of your IDR payments covered each year you qualify. Also, if your IDR payment is too low to cover the annual interest accrued, Michigan's Law School will cover this amount, too, provided you've been in the program for at least two consecutive years.
Get Started With Our New IDR Calculator
Federal student loan forgiveness programs for Michigan residents
In addition to state-specific programs, Michigan borrowers may also qualify for financial aid through one of the federal student loan forgiveness programs through the U.S. Department of Education.
Public Service Loan Forgiveness
Public Service Loan Forgiveness (PSLF) is a federal student loan forgiveness program aimed at public sector workers. To qualify for PSLF, you must complete 10 years of full-time employment for a qualifying employer while making 120 qualifying loan payments. Qualifying employers include the government and select nonprofit organizations.
Monthly payments don't need to be in consecutive order, so you can still qualify if you switched employers or if there's a break in qualifying employment.
To qualify for PSLF, you must submit a Public Service Loan Forgiveness Employment Certification Form annually. The form doubles as your application that you'll submit upon completion of ten years of qualifying service.
Perhaps the greatest benefit of PSLF is that your forgiven loan balance isn't considered taxable income by the IRS. Your federal student loan debt is forgiven tax-free if you qualify.
Income-driven repayment
A lesser-known loan forgiveness option is income-driven repayment (IDR) forgiveness. It's not a formal program you apply for directly. Instead, you can apply to make federal loan payments through one of four income-driven repayment (IDR) plans:
- Income-Based Repayment Plan (IBR)
- Income-Contingent Repayment Plan (ICR)
- Pay As You Earn (PAYE)
- Revised Pay As You Earn (REPAYE)
These repayment plans allow borrowers to pay 10% to 20% of their discretionary income for 20 to 25 years. Depending on the plan, after 20 to 25 years of consistent monthly payments, your remaining loan balance is forgiven.
Unlike PSLF, any forgiven loan funds are considered taxable income by the IRS. Depending on your loan balance, you could get hit with a sizable tax bomb. The good news is that you will have considerable time to prepare financially for the tax hit.
Teacher Loan Forgiveness
Qualifying teachers can have up to $17,500 in student loans forgiven through the Teacher Loan Forgiveness program. To qualify for the program you must have been employed as a full-time “highly qualified” teacher for five complete, consecutive years. Your employment must have been at an elementary school, secondary school, or educational service agency that serves low-income students.
Other qualifications for loan forgiveness depend on the grade level and subject you teach.
Highly qualified teachers in math, science, and special education are eligible for the full $17,500 max, while teachers of other subjects are eligible for $5,000 max.
After completion of five years of qualifying service at an eligible low-income school, you can submit the Teacher Loan Forgiveness Application.
Perkins Loan cancellation
Eligible teachers may qualify to have 100% of their loans forgiven through Perkins Loan Cancellation. To qualify you must have taught at a qualifying low-income school or taught special education, math, science or other designated subjects.
Qualifying teachers can get their loans forgiven over a five-year period, with a specific percentage eligible each year:
- 15% canceled per year for the first and second years of service
- 20% canceled for the third and fourth years
- 30% canceled for the fifth year
Perkins loan cancellation may extend to other professions and volunteer service in some cases, including law enforcement officers, firefighters, public defenders, military members and more.
You can apply for Perkins Loan Cancellation through your school or your school's Perkins loan servicer.
Private loans don't offer loan forgiveness programs. Instead, you can explore student loan refinancing to possibly save money through lower interest rates.
Consider a Michigan student loan forgiveness program today
Completing a student loan forgiveness program is a lengthy affair. Use the information above to determine if you qualify for loan forgiveness and how to apply. It's never too soon to start considering ways to save money and pay down your student loan bill.
If you're unsure of what to do, we can help. Consider booking a consultation with one of our Student Loan Planner consultants. We have helped thousands of borrowers create customized student loan repayment plans based on their unique needs. They can do the same for you.
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