Student Loan Forgiveness for Military SpousesApril 13, 2021
If you serve in any branch of the military, hopefully you’re aware of the various military student loan forgiveness programs available to past and current service members. What you may not realize is that military spouses are not eligible for any of these loan forgiveness programs.
Thankfully, there are other ways for eligible military spouses to receive student loan forgiveness and assistance. Here are some of the best options.
Public Service Loan Forgiveness
Military spouses with federal loans can utilize the Public Service Loan Forgiveness (PSLF) program, which requires that borrowers make 120 payments while working for a qualifying employer in order to have their loan balance forgiven.
Eligible employers include the following categories:
- State, local and federal government agencies
- Public colleges and universities
- Public elementary and secondary schools
- Not-for-profit colleges and universities
- Non-profit companies
- Special governmental districts
You can find a complete list of federal government agencies here.
Only payments made while working for a qualified employer will count toward the 120-payment requirement. Payments do not have to be consecutive so if you work for a non-eligible employer or stop working temporarily, you can still be eligible for PSLF if you return to a qualifying employer.
After making 120 payments, borrowers can request to have the remaining loan balance forgiven. That amount will not be considered taxable income.
The following federal loans are eligible for PSLF:
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans
- Direct Consolidation Loans
If you have a Perkins or FFEL loan, you can consolidate into a Direct Consolidation Loan to become eligible for PSLF.
While working toward PSLF, borrowers need to be on an income-driven repayment plan, which calculates your monthly payment as a percentage of your income. Borrowers working toward PSLF cannot use the standard, graduated and extended repayment plans.
Borrowers should submit an annual employer certification form to the Department of Education in order to confirm their employer’s eligibility and confirm how many qualifying payments they’ve made.
Submitting this form is not legally required until you’re ready for loan forgiveness, but doing it annually will make the process easier. If you wait until your final payment to fill out the form, you’ll have to track down all your previous employers and have them verify your employment timeline.
Federal Income-Based Repayment Plans
The federal government offers four main income-driven repayment plans:
- Pay As You Earn (PAYE): Payments are generally 10% of your discretionary income. The loan balance is forgiven after 20 years.
- Revised Pay As You Earn (REPAYE): Payments are 10% of your discretionary income. The remaining loan balance is forgiven after 20 years for undergraduate loans and 25 years if you have graduate and undergraduate loans.
- Income-Based Repayment (IBR): Payments are 10% of your discretionary income if you became a new borrower on or after July 1, 2014 or 15% if you became a borrower before July 1, 2014. The term is 20 years if your loans were taken out on or after July 1, 2014 and 25 years if your loans were taken out before July 1, 2014.
- Income-Contingent Repayment (ICR): Payments are 20% of your discretionary income or the monthly amount you would pay under a 12-year fixed plan, whichever is lesser. The term is 25 years for all loans.
For the IBR and PAYE plans, discretionary income is defined as the difference between your annual income and 150% of the federal poverty guidelines for your family size and state. For ICR plans, it’s the difference between your annual income and 100% of the federal poverty guidelines.
In general, any remaining loan balance forgiven under an IDR plan is subject to income tax. However, that may change in the future. The passage of the American Rescue Plan Act of 2021 ensures that any student loans that are forgiven under an income-driven repayment plan from now until 2025 will not be subject to income taxes.
Because most IDR plans only began a few years ago, this change in law will only currently affect borrowers on the income-contingent repayment plan. But some experts believe this may be the start to total tax-free loan forgiveness for all IDR plans.
Military spouses seeking student loan forgiveness can use the official loan simulator to see what their monthly payment would be under each of the four IDR plans.
Servicemembers Civil Relief Act (SCRA)
Borrowers with spouses on active duty can take advantage of the Servicemembers Civil Relief Act (SCRA), which limits interest rates to 6%. If you have student loans with a rate greater than 6%, you can call the lender, mention that you’re eligible for the SCRA and ask them to decrease the rate. While it isn’t full loan forgiveness for military spouses, it may help to make your monthly payments more manageable.
Don’t worry if you’ve waited a while to contact the lender. You can still request a refund for any overage interest you paid. The lender will likely ask for proof that you’ve been affected by your spouse being on active duty.
Service members from the following branches are eligible:
- Air Force
- Marine Corps
- Coast Guard
- Reservists on Active Duty
- National Guard members on federal duty for 30 days or more
- Commissioned officers in active service of the Public Health Service (PHS) or the National Oceanic and Atmospheric Administration (NOAA)
Student Loan Refinancing
The main benefits of student loan refinancing are the possibilities of lowering your monthly payment and paying less in total interest. For example, let’s say you have a $35,000 balance with 9% interest on a 10-year term.
If you refinance to a 10-year term with 3.09% interest, your new monthly payment would be $104 less per month. You would also pay $6,552 less in total interest over the life of the loan.
Refinance Your Student Loans With ELFI
Student loan refinancing may be the best option for military spouses who don’t qualify for Public Service Loan Forgiveness (PSLF) or who aren’t interested in an Income-Driven Repayment (IDR) plan. ELFI pairs borrowers with a personal loan advisor to walk them through the entire process. ELFI also has a 4.9 out of 5 rating on TrustPilot with more than 1,400 reviews.1
This website is for educational and informational purposes only and should not be construed as legal, financial or tax advice. Links to other websites or references to services or applications are provided as a convenience only. A link does not imply ELFI’s sponsorship or approval of any other site, service or application. ELFI does not control the content of these sites, services or applications.
*Education Loan Finance is a nationwide student loan debt consolidation and refinance program offered by Tennessee based SouthEast Bank. ELFI is designed to assist borrowers through consolidating and refinancing loans into one single loan that effectively lowers your cost of education debt and/or makes repayment very simple. Subject to credit approval. See Terms & Conditions. Interest rates current as of 03-02-2021. The interest rate and monthly payment for a variable rate loan may increase after closing, but will never exceed 9.95% APR. Interest rates may be different from the rates shown above and will be based on the term of your loan, your financial history, and other factors, including your cosigner’s (if any) financial history. See Eligibility Requirements for more information. For example, a 10-year loan with a fixed rate of 6% would have 120 payments of $11.10 per $1,000 borrowed. Rates are subject to change.
1As of 4/7/21, Education Loan Finance has the best TrustPilot TrustScore® (4.9 out of 5) among major student loan refinancing lenders.