Types of Loans & Counseling School Loan Forgiveness Programs
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Can students in counseling programs get school loan relief?
As part of the Higher Education Amendments of 1998, Congress included a provision establishing loan forgiveness for the teaching profession. Some counseling professions do meet the definition of “teachers.”
Over the years the rules have changed, so it makes sense to know what you can and can’t expect when it comes to counselor education loan forgiveness programs. The College Cost Reduction and Access Act (CCRAA), enacted in October 2007, created the Public Service Loan Forgiveness Program. That made certain counselors, including mental health and school counselors who met certain criteria, eligible for loan forgiveness, but only if they worked in public-service fields for ten years.
There is a common perception that loans can be forgiven or discharged just by choosing certain professions. While certain professions do meet the requirements for some loan forgiveness, there is more to it than that. But before getting into the details of how aspiring, current, and past students in counseling programs can get school loan relief, let’s look at the difference between the terms that people use to describe loans.
“There are a lot of nuances when it comes to repayment and forgiveness programs,” says April Sanderson, a financial counselor with LSS Financial Counseling in Duluth, Minnesota. “Make sure to do research on either the DIRECT websites, the state government’s website, NHSC.hrsa.gov for the Service Corps repayment programs, or StudentAid.gov for Federal Forgiveness Programs, for example, to ensure all details are examined. If a borrower needs help, seek non-profit assistance, and NEVER pay for assistance!”
Differences Between Loan Forgiveness, Cancellation, and Discharge
The terms forgiveness, cancellation, and discharge have similar meanings, but they are frequently used in different ways.
The terms forgiveness and cancellation mean that you are no longer required to make payments on some or part of your loan for whatever the reason, often due to the type of job that you have. Discharged, however, is a term that is usually reserved for being absolved of the responsibility of repaying a loan due to circumstances beyond the type of job that you have, such as the student becoming totally and permanently disabled or the closure of the school where the student received their loans.
Loan Delinquency vs. Loan Default
A delinquent student loan is one that is not paid by the first day after the bill’s due date. If a payment is not made on the student loan for 90 days or more, the loan servicer will report the delinquency to the three major national credit bureaus. If no payment is made, the loan can go into default.
When a student loan is considered to be in default depends on the type of loan the borrower received. According to StudentAid.gov, for direct loans under the William D. Ford Federal Direct Loan Program or the Federal Family Education Loan Program, the borrower is considered to be in default if payments are not made for at least 270 days or nine months.
For Perkins Loan holders, those loans may be considered to be in default if payment is not made by the due date.
There can be some serious consequences of defaulting, which can include losing any credit the borrower has received toward loan forgiveness. If a loan is in default, the borrower can no longer receive deferment or forbearance or change repayment plans.
There are a number of types of school loans and different funding sources, as well. Some are federal loans from the government, and some could come from private sources. Within the federal loans, there also are several different types of school loans.
Types of Federal Student Loans
When students or their parents receive a loan from the government, that loan comes from the William D. Ford Federal Direct Loan (Direct Loan) Program. In other words, a direct loan means the government itself is the lender. Direct loans can be Subsidized or Unsubsidized. According to StudentAid.gov, Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans are types of Direct Loans.
Direct Unsubsidized Loans vs. Direct Subsidized Loans
Direct Subsidized Loans have slightly better terms for borrowers, because the U.S. Department of Education pays the interest while the student continues their education at least half time, for the first six months after the student graduates, and/or during a period when the loan repayments are postponed.
Direct Unsubsidized Loans are available for graduate and undergraduate borrowers without demonstrating a financial need. The borrower is responsible for paying the interest on a Direct Unsubsidized Loan at all times.
Stafford Loans are the most common federal education direct loans that students receive. They can be either subsidized or unsubsidized. According to GovLoans.gov, Stafford Loans are low-interest loans that can either be subsidized or unsubsidized.
Perkins Loans were a common low-interest subsidized federal loan that was formerly available to students who demonstrated exceptional financial need. Students can no longer receive Perkins Loans because they were phased out in September 2017.
PLUS Loans, which stand for Parent Loan for Undergraduate Students, can cover expenses not met by other federal financial aid. PLUS Loans are for parents of students but are also available for graduate students as well. These are a type of direct loan. Although the Parent PLUS Loans are for the benefit of students, parents are responsible for paying them back.
Consolidation Student Loans
A Consolidation Loan is a type of direct loan that allows borrowers to combine, or consolidate, more than one loan into a new loan, generally with a lower or fixed interest rate and a longer repayment term. Consolidating can be a benefit because it simplifies the repayment of several loans into one monthly payment.
One important drawback to these loans, according to StudentAid.gov, is that consolidating can cause a borrower to lose credit for any payments made toward income-driven repayment plan forgiveness, or if they have made qualifying payments toward Public Service Loan Forgiveness. Because consolidated loans generally have a longer repayment term, the borrower may end up paying more in interest over the life of the loan.
Federal Family Education Loan
The Federal Family Education Loan (FFEL) Program allowed private lenders to make federal student loans to students. These were phased out in July 2010.
Institutional Loans or Private Loans
Federal loans come from the government, but loans are available from a variety of non-federal sources.
Institutional loans are also called private loans. These loans can come from a variety of institutions, such as banks, credit unions, and state-based organizations. The lender will set its own terms and conditions for interest rate and repayment.
Types of Loan Forgiveness Programs
Now that we have covered the types of loans, it is easier to explain what types of loan forgiveness programs are available. Sometimes, the forgiveness plan depends on the type of loan that is in question.
Income-Driven Loan Forgiveness
According to StudentAid.gov, income-based repayment plans set a repayment amount that is considered affordable based on the borrower’s income and family size. A borrower must apply for an income-based repayment plan. The government offers four income-based repayment plans. The loan payment amount on each of these is generally 10 percent of the borrower’s discretionary income. The loan payment amount on the Income-Contingent Repayment Plan (ICR Plan) is 20 percent of the borrower’s discretionary income.
Income-driven repayment plans have different repayment periods ranging from 20 to 25 years. Under all four plans, any remaining loan balance is forgiven if the borrower’s federal student loans aren’t fully repaid at the end of the repayment period. This means that if the borrower’s income remains low for 20 or 25 years, and they have met the other eligibility requirements of loan forgiveness under the Public Service Loan Forgiveness (PSLF) Program, the borrower may qualify for forgiveness of any remaining loan balance after they have made ten years of qualifying payments, instead of 20 or 25 years.
Qualifying payments for the PSLF Program include payments made under any of the income-driven repayment plans. Student loans in default are not eligible for repayment under any of the income-driven repayment plans.
Public Service Loan Forgiveness
If the borrower is employed by a government or not-for-profit organization, they may be able to receive loan forgiveness under the Public Service Loan Forgiveness (PSLF) Program.
Before a borrower can be eligible for forgiveness, they must have made 120 qualifying monthly payments (ten years) under a qualifying repayment plan while working full-time for a qualifying employer. If this condition is met, PSLF forgives the remaining balance on Direct Loans. Federal Family Education Loan (FFEL) Program loans and Perkins Loans may become eligible for Public Service Loan Forgiveness if they are consolidated into the Direct Loan Program.
To qualify for PSLF, the borrower must meet the following criteria:
- Be employed by a U.S. federal, state, local, or tribal government or not-for-profit organization;
- Work full-time for that agency or organization;
- Have direct loans (or consolidate other federal student loans into a direct loan);
- Repay their loans under an income-driven repayment plan; and
- Make 120 qualifying payments (ten years)
For parent PLUS borrowers, the Income-Contingent Repayment Plan is the only income-driven repayment plan available. In order to repay loans under that plan, the loans must first be consolidated into a Direct Consolidation Loan. A borrower can potentially receive forgiveness under both the Teacher Loan Forgiveness Program and the Public Service Loan Forgiveness Program, but not for the same period of teaching service.
Teacher Loan Forgiveness
Borrowers with Direct Loans and FFEL Program loans who are also highly qualified teachers who teach full-time for five complete and consecutive academic years in a low-income elementary school, secondary school, or educational service agency can have loans forgiven. If the borrower receives Teacher Loan Forgiveness, they may not also receive Public Service Loan Forgiveness. The maximum amount that can be forgiven is either $17,500 or $5,000.
“This loan program is specifically for teachers with direct classroom teaching experience,” says Sanderson. “Per the Teacher Loan Forgiveness Application, ‘ . . . guidance counselors . . . are not considered teachers for the purposes of this loan forgiveness program.’ However, school counselors and any employee at a public school would qualify for the Public Service Forgiveness Program through the U.S. Department of Education for their direct federal student loans.”
The years of qualifying teaching and qualifying payments may not count toward both the Teacher Loan Forgiveness Program and the Public Service Loan Forgiveness Program. To also qualify for the PSLF program, 120 additional qualifying monthly payments (ten additional years) would have to be made.
PLUS loans and Perkins Loans are not eligible for teacher loan forgiveness. See the Perkins Loan Forgiveness section below for information on how a portion of Federal Perkins Loan can be canceled. A loan in default is not eligible for forgiveness.
Perkins Loan Forgiveness
Counselors who meet the requirements of teacher loan forgiveness can qualify for cancellation of up to 100 percent of a Federal Perkins Loan. The requirements are to serve in a low-income school, be a special education teacher, or teach in an area designated as a teacher shortage area, such as mathematics, science, foreign languages, or bilingual education.
A guidance counselor, occupational therapist, recreational therapist, or psychologist or counselor qualifies as a teacher for this program, provided they meet other teacher requirements, such as being licensed, certified, or registered by the appropriate state education agency. Perkins Loans that are in default are not eligible for forgiveness, cancelation, or discharge. The Perkins Program forgives 15 percent of the borrower’s loan for the first and second years of teaching service, 20 percent for the third and fourth, and 30 percent for the fifth, up to 100 percent.
“It is also important to note that while Perkin’s cancellation generally happens after five years, if the borrower changes employers (schools in this case), those five years start over,” says Sanderson. “To clarify, Perkin’s forgiveness is a portion of the balance each year for five years to total 100 percent (20 percent yearly), but if the borrower starts at a new employer the forgiveness portions restart (20 percent at the new balance).”
Other Reasons for Loan Discharges
There are some unusual circumstances in which a loan can be discharged. If the borrower’s school closes while they are enrolled, while they were on an approved leave of absence, or within 120 days after they withdraw, their federal direct or FFEL student loan may be discharged. Eligible loans are direct loans, Federal Family Education Loan (FFEL) Program loans, or Federal Perkins Loans.
Students who become totally and permanently disabled can have their direct loans, FFEL loans, or Perkins loans forgiven.
If the borrower dies, their federal student loans are discharged after the required proof of death is submitted. A borrower’s student loans are not automatically forgiven in the event of declaring bankruptcy. Depending on the court’s determination, the loan may be fully or partially forgiven. Or, the borrower may still be required to repay the loan under new repayment and interest terms.
There are also some uncommon school-related misconduct loan forgiveness circumstances. If the borrower’s school engaged in certain misleading or illegal practices, the borrower’s loans may be eligible for forgiveness. Loans can be forgiven if a school misled the borrower or otherwise engaged in misconduct in violation of certain state laws.
PPACA and HERA Student Loan Programs for Counselors
President Barack Obama signed into law the Patient Protection and Affordable Care Act (PPACA) and the Health and Education Reconciliation Act (HERA) in March 2010. This results in reforms to lending such as capping monthly repayments at 10 percent of the borrower’s discretionary income instead of the former 15 percent.
Borrowers who keep up with their payments will have the balance forgiven after 20 years in most cases, rather than the previous 25 years, or ten years for those pursuing the Public Service Loan Forgiveness Program.
The College Cost Reduction and Access Act (CCRAA), enacted in October 2007, is what created the Public Service Loan Forgiveness Program. This allowed mental health and school counselors, who work in public-service fields for ten years, to be eligible for loan forgiveness if they have met the following requirements:
- Have made 120 monthly payments (10 years) on a Direct Loan after October 1, 2007;
- Are employed in a “public service job” currently and during the ten-year repayment period;
- Are employed full time in an area of national need (described above); and
- Are not in default on the loan for which the applicant is seeking forgiveness
Counseling-related public service jobs include:
National Health Services Corps Loan Repayment Program (NHSC LRP)
“NHSC’s website lists multiple types of counselors under their Behavioral and Mental Health disciplines that are eligible,” says Sanderson. “This is a great option for counselors with private student loans or ones that otherwise don’t qualify for the Public Service Forgiveness Program and meet the other requirements for the NHSC repayment program.”
While substance use disorder counselors are eligible to participate in the National Health Services Corps Substance Use Disorder Workforce Loan Repayment Program (NHSC LRP), there is no other specific loan repayment for non-substance use disorder-trained workers.
“But,” says Sanderson, “they would qualify under the general NHSC program as long as they meet those requirements. These borrowers may also qualify for additional repayment or forgiveness options through their state or the U.S. Department of Education.”
When substance abuse counselors serve in defined areas with inadequate access to healthcare, also known as health professional shortage areas (HPSA), the Corps assists in the repayment of qualifying education loans. The programs provide forgiveness of up to $2,000 in Federal Stafford Loan or Federal Direct Stafford Loan debt for each school year or calendar year of full-time employment in areas of national need, up to five years, for a maximum of $10,000 per eligible borrower. Parent PLUS Loans are not eligible.
To be eligible for consideration, counselors must be fully trained, licensed, and working at (or in the final stages of employment negotiations with) an NHSC-eligible facility.
NHSC Loan Repayment awards are given to applicants who are not in default on any federal payment obligations or other non-federal payment obligations such as court-ordered child support. Applicants must meet standards of service obligations, and not be excluded, suspended, or disqualified by a federal agency. Applicants must commit to providing primary care service in an HPSA. Please note that this program is not always funded.
National Health Service Corps-approved service jobs include:
- Health Service Psychologists (HSP)
- Licensed Clinical Social Workers (LCSW)
- Psychiatric Nurse Specialists (PNS)
- Marriage and Family Therapists (MFT)
- Licensed Professional Counselors (LPC)