The average student loan debt when a student graduate is approximately $29,800, with the average monthly payment between $200 and $300 according to Student Loan hero. And those who can’t afford the monthly payments or stay behind with their payments often look for any type of student loan forgiveness.

You may be asking yourself does student loan forgiveness works? and the answer is yes it does work, but it won’t happen overnight in fact it would take some years for your student loans to be forgiven.

See this is how student loan forgiveness works.

Borrowers who are having a financial hardship and stay behind on repaying their loans have many options available by The Department of Education to lower their monthly payments and at the end of the terms get their loan forgiven.

For example….

Income-Driven Repayment

This plan bases the borrower’s payment strictly on their income and family size each caps payments to between 10% and 20% of your discretionary income. The balance of the loan and interest rate are not used in calculating the monthly payment. The borrower would be responsible to pay 15% of their discretionary income to their federal student loans. Borrowers in the IBR can have a payment as low as $0.00/mo

The student loan forgiveness in this program comes after 20 or 25 years of repayment.

Do you need to pay the taxes on the forgiven loans once forgiveness on the loans goes into effect? There’s a possibility that you might end up paying the full balance of the loans before the forgiveness period kicks in. But if you have a balance left at the end of the repayment term, the forgiven amount will be taxed as income.

Eligible Loans:

Direct Loans:

• Stafford Subsidized
• Stafford Unsubsidized
• Consolidation
• Special Consolidation
• Student PLUS

The following Direct Loans are NOT eligible for this repayment plan: defaulted loans, parent PLUS Loans, and Consolidation or Special Consolidation Loans that repaid a Parent PLUS Loan.

FFEL Loans:

• Stafford Subsidized
• Stafford Unsubsidized
• Consolidation
• Student PLUS

The following FFEL Loans are NOT eligible for this payment plan: defaulted loans, parent PLUS Loans, and Consolidation Loans that repaid a Parent PLUS Loan.

Things to Consider

You must have a partial financial hardship (based on your adjusted gross income, and family size. If you’re married and file a joint tax return, your spouse eligible student loan debt and adjusted gross income are also considered).

Requires you to submit documentation annually to continue making payments based on your income. The repayment period is up to 25 years.

Offers loan forgiveness after 25 years if you make the equivalent of 300 qualifying monthly payments.

Pay As You Earn or PAYE

Pay As You Earn is an income-driven repayment option that considers income and family size and offers lower monthly payments to those who are eligible. Under this plan. This plan differs from other income-driven repayment plans in that loan forgiveness is granted after 20 years of qualifying payments instead of 25 and is calculated based on 10% of their income.

Who is Eligible for Pay As You Earn:

You must not have an outstanding balance on a Direct Loan or FFEL Program Loan as of October 1, 2007, or had no outstanding balance on a Direct Loan or FFEL Program Loan when they obtained a new loan on or after October 1, 2007.

You have a Direct Loan with a disbursement made on or after October 1, 2011.

Eligible Loans

Direct Loans:

• Stafford Subsidized
• Stafford Unsubsidized
• Consolidation
• Special Consolidation
• Student PLUS

The following Direct Loans are NOT eligible for this repayment plan: defaulted loans, parent PLUS Loans, Consolidation or Special Consolidation Loans that repaid a parent PLUS Loan, and Consolidation Loans that repaid a loan made before October 1, 2007.

FFEL Loans: Are Not Eligible

Things to Consider

You must have a partial financial hardship (based on your adjusted gross income and family size) to enter this repayment plan.

If you’re married and filed a joint tax return, your spouse eligible student loan debt and adjusted gross income are also considered.

Requires you to submit documentation annually to continue making payments based on your income. You can request to have your account put on an Income-Driven Plan with the lowest monthly payment. The repayment period is up to 20 years.

Offers loan forgiveness after 20 years if you make the equivalent of 240 qualifying monthly payments.

Income Contingent Repayment (ICR) Plan

The Income Contingent Repayment plan uses a couple of income-based factors to determine what your payment will be during your Student Loan Repayment.

The Income Contingent Repayment plan calculates your payment two different ways, and then gives you the lower of the two payments. One calculation is your Adjusted Gross Income(AGI) over the poverty line for your family size, multiplied by 20% for an annual payment (divide by twelve for the monthly payment). This calculation does not take the loan size into account at all.

Payment = ((AGI - Poverty Line) x 20%) / 12

The second calculation does use your loan value, and income factor determined by the federal government, and a constant multiplier also determined by the federal government. Based on the formula that yields the lower payment, that will be the payment used. If the payments are not sufficient to cover the interest that has accumulated on the loans, the unpaid amount will be capitalized once each year.

However, the capitalization will not exceed 10% of the original amount owed when entering repayment. Despite this feature, it’s important to keep in mind that any unpaid portion of the loan will be forgiven at the end of the term. Ultimately, you can end up paying back very little on your student loans.

You may benefit from an Income Contingent Repayment Plan if you are suffering from financial hardship and need relief.

You do not see yourself having a higher income in the future and would like to be eligible for student loan forgiveness. Under this repayment, it is not expected that at the end of the term the loan will be paid off, so loan forgiveness is likely.

Eligible Loans

Direct Loans:

• Stafford Subsidized
• Stafford Unsubsidized
• Consolidation
• Special Consolidation
• Student PLUS

Direct parent PLUS loans are not eligible for this repayment plan.

FFEL Loans:

• FFEL Loans are NOT eligible for this payment plan.

Things to Consider

• Requires you to provide documentation annually.
• The maximum repayment period is 25 years.

This program offers loan forgiveness after 25 years once you make the equivalent of 25 years of qualifying monthly payments.