Student loans are brutal. I’ve had a couple of heart-to-heart conversations recently about the trials and tribulations of paying them back.  While the average person owes around $30,000, most of the people that I talk with owe between $150,000 and $300,000 because of graduate school.

I’ve been lucky and disciplined enough to pay off the vast majority of my $166,000 of law school loans, but I’ll never forget the burdensome feeling of having all of that debt following me.  And while attacking the debt with a clear plan of action is likely the best way to get rid of it, some programs exist that can help you eliminate your loans without paying them back.

Public Service Student Loan Forgiveness

This program forgives your federal student loans, if you work full time at an eligible non-profit or public service institution. You also must have made 120 eligible on-time payments no less than 10 years. But after those 10 years, the rest of your debt is forgiven. This program can be coupled with an income-driven repayment plan, which limits the amount that you pay to a percentage of your discretionary income.

Only federal Direct Loans are eligible for Public Service Loan Forgiveness. If you don’t have all direct loans, you can consolidate your other federal loans into a new Direct Loan.  You should also fill out the Employer Certification form every year to keep track of your eligible employment and qualifying payments.

The Consumer Protection Financial Bureau has provided a helpful guide for this program if you want more information.

Public School Teacher Forgiveness

If you teach in a school that serves low-income families, you may qualify for a different benefit. After completion of five academic years in an elementary or secondary school, you can receive $5,000 in forgiveness of your Direct and/or Stafford loans. Highly qualified math, science, or special education teachers can get up to $17,500 after completion of five academic years.

With this program, you must teach for five complete and consecutive years. In addition, your school must be in a district that qualifies for Title I funding and serves a population in which more than 30% of the school’s total enrollment qualify for services under Title I.

Unfortunately you can’t take advantage of both this benefit and the Public Service Loan Forgiveness. Which one you pursue, depends on how much you have in loans and at what rate you’re paying them back.  

You can read more about this program here. 

Bankruptcy

You’ve likely heard that student loans are the most dangerous debt because in most circumstances they can’t be discharged in bankruptcy. While it’s rare, the debt can be discharged, if you can prove in a Chapter 7 or 13 Bankruptcy that paying back the loans would cause an undue hardship.

Most courts use a three-part test to determine hardship:

• You would not be able to maintain a minimal standard of living, if forced to repay the loans.
• This hardship will continue for a significant portion of the loan repayment period.
• You made good-faith efforts to repay the loan before filing bankruptcy (usually this means you have been in repayment for a minimum of five years).

You have to meet all three prongs in order to qualify.  The discharge can also be contested by your creditors during an adversary hearing. Again courts are reluctant to do this, but you may have a better chance if your income is very low or your loans are from a for-profit trade school.  Here’s a case where a law school graduate got $53k of his debt discharged.

While it’s nice to have some of your debt forgiven, there may be consequences for having done so. More on that Friday.