Journalist Norman Cousins is credited with saying, “Life is an adventure in forgiveness." The ability to forgive is important, not only in our personal lives but in our finances as well.

The average college student graduates with $40,000 in student loan debt. That is a sobering figure. With college tuition rising faster than inflation, the prospect of graduating debt-free is becoming increasingly unlikely.

Student Loan Forgiveness

Did you know that roughly half of all borrowers with student loan debt are eligible for loan forgiveness? The most common method is via an income-based repayment program. Here’s how it works: You sign up for a qualified student loan repayment plan and make payments for 25 years. The payments cannot exceed 15 percent of your discretionary income. When the 25 years are up, any remaining student loan debt is forgiven.

But wait, it gets better. If you acquired student loan debt after 2014, you only have to make payments for 20 years. And, the payments will not exceed 10 percent of your discretionary income. After the period ends, any remaining debt is forgiven.

What exactly is discretionary income? Discretionary income is defined as money left over after paying for housing, utilities, food, and taxes.

One downside to student loan forgiveness is the potential tax consequences. Depending on your income, you may owe taxes on forgiven student loan debt. In the calendar year your student loan is forgiven, the amount of forgiven debt is added to your taxable income. Still, it’s better to pay tax on the debt than the actual debt.

Public Service Loan Forgiveness

An even better way to avoid repaying student loans comes by way of the Public Service Loan Forgiveness Program. If you are a government employee, you may be eligible for this program. Here’s how it works: You make payments on your student loans at a rate not to exceed 10 percent of your discretionary income, and after 10 years any remaining debt is forgiven.

Most borrowers who qualify for this program are federal, state, or local government employees, Employees of non-profit organizations are also eligible.

Final Word

It was Shakespeare who said, “Neither a borrower nor a lender be." That is good advice, but if you’ve already acquired student loan debt, it’s a little late. Check out these programs. Going through life with debt hanging over your head is bad, but it’s better if you can see light at the end of the tunnel.

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