The cost of college has been rising steadily for decades. According to the National Center for Education Statistics, the Student Loan Forgiveness average annual cost of attending a public 4-year college (including tuition, fees, room, and board) was $17,237 for the 2017-2018 school year. This represents a 35% increase from just 10 years prior.
At private non-profit 4-year colleges, costs were even higher at an average of $46,014 per year. With these high costs, many students have no choice but to take out student loans to finance their education. Today there are 45 million borrowers who collectively owe nearly $1.6 trillion in student loan debt in the U.S. alone. This is now the second highest consumer debt category behind only mortgage debt.
Student loan debt is an ongoing crisis that prevents many Americans from being able to buy homes, start families, open businesses, and save for retirement. Finding ways to reduce and eliminate student debt through loan forgiveness programs is essential for current and future generations of students. This content will explore the various options for student loan forgiveness available to New Jersey residents.
Types of Student Loans
There are two main types of student loans – federal and private.
Federal student loans are issued by the federal government and come with certain benefits like income-driven repayment plans, loan forgiveness programs, and deferment or forbearance options. The most common federal loans are Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans and Direct Consolidation Loans. These are eligible for programs like Public Service Loan Forgiveness and Teacher Loan Forgiveness.
Private student loans are non-federal loans issued by banks, credit unions, schools or other private lenders. They generally have higher, variable interest rates and less flexible repayment options. Private loans don’t qualify for federal repayment or forgiveness programs. You’ll need to check with your lender for any available relief options.
The main differences:
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Federal loans offer benefits like income-driven repayment and forgiveness programs. Private loans don’t.
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Federal loan interest rates are fixed. Private loans often have variable rates.
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Federal loans have flexible deferment, forbearance and disability discharge options. Private loans have limited flexibility.
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Federal loans are eligible for consolidation. Private loans can’t be consolidated with federal.
So federal loans generally provide more protections and repayment options for borrowers. But you may need private loans if federal loan limits are maxed out.
Federal Loan Forgiveness Programs
The federal government offers several loan forgiveness programs that allow certain borrowers to have a portion or all of their federal student loans forgiven after meeting specific requirements. One of the most well-known programs is Public Service Loan Forgiveness (PSLF).
To qualify for PSLF, you must:
- Have federal Direct Loans
- Be enrolled in an income-driven repayment plan
- Make 120 qualifying monthly payments
- Work full-time for a U.S. federal, state, local, or tribal government or not-for-profit organization
After making 120 on-time qualifying monthly payments, the remaining balance on your federal Direct Loans can be forgiven tax-free through PSLF. Qualifying payments must be made under an income-driven repayment plan and you must be employed full-time with a qualifying employer while making the payments.
PSLF was created to encourage individuals to enter and continue full-time public service employment. Jobs that qualify for PSLF include government organizations at any level (federal, state, local, or tribal), AmeriCorps or Peace Corps positions, public schools, colleges, and universities, public child or family service agencies, and certain not-for-profit organizations that provide qualifying public services.
The PSLF program currently faces some challenges, including confusion over qualifying payments and employment. However, PSLF can still provide substantial student loan forgiveness for eligible public service employees after 10 years of payments.
Income-Driven Repayment Plans
One way to potentially lower your monthly student loan payment is to enroll in an income-driven repayment plan. These plans base your payment amount on your income and family size. There are a few main income-driven plans to consider:
Income-Based Repayment (IBR): This plan caps your monthly payments at 10% of your discretionary income if you borrowed your first loans before July 1, 2014, or 15% if you borrowed after this date. After 20-25 years of payments, any remaining balance is forgiven.
Pay As You Earn (PAYE): This plan caps payments at 10% of discretionary income and forgives balances after 20 years of payments. It has a few more eligibility requirements than IBR.
Revised Pay As You Earn (REPAYE): This is similar to PAYE but it caps payments at 10% of discretionary income for undergraduate loans and 15% for graduate loans. Balances are forgiven after 20-25 years. Anyone with federal loans can qualify.
These income-driven plans can provide payment relief now and potential forgiveness later. Just keep in mind you may pay more interest over time compared to the 10-year standard plan. Be sure to understand the pros and cons before enrolling.
NJ State Loan Redemption Programs
New Jersey offers two loan redemption programs to help certain professionals pay off their student loans.
Primary Care Practitioner Loan Redemption Program
This program provides student loan reimbursement to primary care practitioners who work in underserved areas in New Jersey. Primary care practitioners include physicians, dentists, nurse practitioners, certified nurse midwives, and physician assistants who provide primary care services.
To qualify, you must work full-time in a designated underserved area and meet income eligibility requirements. For each year of qualifying full-time service, you can receive up to $120,000 in student loan reimbursement over a total of 4 years. Part-time work is also eligible for prorated repayment.
Nursing Faculty Loan Redemption Program
This program offers student loan reimbursement to nursing school faculty members who teach at select nursing programs in New Jersey.
To qualify, you must serve as full-time nursing faculty at an approved nursing education program in New Jersey. For each year of full-time service, you can receive up to $30,000 in loan reimbursement for a total of 4 years. The program aims to strengthen the nursing workforce in New Jersey by supporting more nursing faculty.
Both of these programs can provide substantial student loan relief for eligible professionals working in high-need areas in New Jersey.
Refinancing and Consolidation
Refinancing and consolidating student loans are two options that may help some borrowers lower their monthly payments or pay off their loans faster. Here’s an overview of how each works:
Refinancing
Refinancing replaces your existing federal and/or private student loans with a new private loan at a lower interest rate. This can help reduce your monthly payments and total interest costs over the life of the loan.
Pros of refinancing:
- Lower interest rate saves money over time
- Flexible loan terms (e.g. 5-20 years)
- Single monthly payment instead of multiple loans
Cons of refinancing:
- Loss of federal loan benefits like income-driven repayment and forgiveness programs
- Credit check required, better credit scores get lower rates
- Private lenders vs federal protections
Ideal candidates have good credit (650+ score), steady income, and a debt-to-income ratio under 50%. Compare lenders to find the best interest rate and loan terms.
Consolidation
Consolidation combines multiple federal loans into one new Direct Consolidation Loan with a fixed interest rate. This can simplify repayment with just one monthly bill.
Pros of consolidation:
- Single payment for multiple loans
- Flexible repayment terms up to 30 years
- May qualify for income-driven repayment plans
- Can get out of default by consolidating
Cons of consolidation:
- No reduction in interest rate
- Loss of grace period for new loans
- Potentially higher total interest costs over long term
Federal loan borrowers of any credit profile are eligible to consolidate.
Defaulting on Loans
Defaulting on a student loan occurs when you fail to make payments for 270 days. This leads to serious consequences such as:
- Your entire unpaid balance becomes due immediately.
- Collection fees of up to 25% can be added to your loan.
- Your credit score will be damaged.
- Your wages can be garnished without a court order.
- Your federal and state tax refunds can be seized.
- You lose eligibility for additional federal student aid.
- Interest will continue accruing on the loan.
If you default on a federal student loan, you have options to rehabilitate the loan. Rehabilitation involves making 9 on-time monthly payments within 10 months. This will remove the default status. The loan will then return to normal repayment.
Another option is loan consolidation, which allows you to combine multiple federal loans into one new loan. This resets the clock on default.
In certain cases, it may be possible to qualify for student loan forgiveness after default through programs like Public Service Loan Forgiveness or Borrower’s Defense. You will need to rehabilitate the loan first before pursuing these options.
The consequences of default are severe, so it’s critical to understand the options available. With rehabilitation or consolidation, it is possible to get out of default and regain eligibility for programs that lead to forgiveness.
Loan Forgiveness for Teachers
Teachers in New Jersey may be eligible for student loan forgiveness through federal or state programs. Here are some of the main options:
Federal Teacher Loan Forgiveness
The federal government offers loan forgiveness programs for teachers who work in low-income schools or educational service agencies for 5 consecutive years. You must have federal Direct Loans or FFEL loans and meet other eligibility criteria. This program forgives up to $17,500 on qualifying loans.
NJ Governors Urban Scholarship Program
This program provides funds to help cover college costs for students planning to teach in New Jersey urban school districts after graduation. You must teach math, science, or special education in a NJ urban district.
NJ Loan Redemption Program for Primary Care Practitioners
Primary care doctors, dentists, and other healthcare practitioners who work in underserved areas in NJ may receive up to $120,000 in medical school loan redemption after completing a 5-year service obligation. You must work at least 60 hours per week.
NJ Loan Redemption Program for Nurses
Nurses who complete a bachelor’s or graduate nursing program and work in eligible facilities in NJ can receive up to $30,000 in loan redemption after a 4-year service commitment. Facilities include state/county prisons, state psychiatric hospitals, and veterans memorial homes.
To qualify for loan forgiveness as a teacher in New Jersey, carefully review the eligibility and service requirements for each program. Maintaining detailed records is key.
Total and Permanent Disability
If you become totally and permanently disabled and meet certain criteria, you may qualify for a discharge of your federal student loans.
School Closure
This applies to schools that closed on or after January 1, 2023. The discharge eliminates any remaining federal loan debt you obtained to attend the closed school.
False Certification
If your school falsely certified your eligibility to receive loans, you may qualify for a false certification discharge. For example, if the school certified you had a high school diploma but you did not, or falsely certified that you could benefit from the training program. You’ll need to provide proof of the false certification.
Other Strategies
There are a few other strategies that New Jersey residents can utilize to reduce their student loan burden besides the loan forgiveness programs mentioned above.
Scholarships and Grants
Sites like Scholly and Fastweb can help identify potential scholarship opportunities.
The state of New Jersey offers some grant programs as well:
- The Governor’s Urban Scholarship provides a maximum of $1,000 per semester to residents living in distressed municipalities pursuing their first associate or bachelor’s degree.
- The NJ STARS program covers the full cost of tuition at NJ community colleges for students who graduate in the top 15% of their high school class.
Loan Repayment Assistance Programs
. This can come in the form of matching payments, capped annual repayment contributions, or payments made in exchange for years of service.
Budgeting
Careful budgeting and cutting back on discretionary spending can help New Jersey residents direct more cash flow towards paying down principal on their student loans. Apps like Mint, You Need a Budget, and EveryDollar can assist with tracking expenses, creating budgets, and prioritizing debt repayment.
Aside from spending adjustments, residents may want to explore side income opportunities like freelancing, tutoring, ridesharing or monetizing hobbies to put towards student loans. Every extra dollar earned can accelerate debt repayment.
