Perkins Loan Forgiveness: How Does it Work?

When you take out a loan, the expectation is that you'll pay back all the money you've borrowed (plus interest, of course). It usually takes pretty catastrophic circumstances for a federal student loan to be canceled, like your school shutting down before you can get your degree.

The Perkins loan program is different, in a good way - it offers loan forgiveness/cancellation in a wide variety of other, happier circumstances. In an effort to encourage graduates to pursue certain public service careers, the loan program offers loan forgiveness, or cancellation, to borrowers in certain professions. If you have a Perkins loan and enter one of the fields I outline below, you could have up to 100% of your loan canceled. Read on to learn more about cancellation eligibility & the loan cancellation process!

How Does Perkins Loan Cancellation Work?

If you decide you'd like to work in public service after you graduate from college, you can apply to get your Perkins loans canceled at a specific rate on an annual basis. The exact public service jobs eligible for cancellation will be discussed in the next section. If you work at a particular job for a long enough period, you could get up to 100% of your loans canceled.

The chart below outlines the annual rates of loan cancellation for almost all eligible borrowers; you'll notice that 5 years of working = 100% loan cancellation. You'll note in the next section, however, that not all professions qualify borrowers for 5 full years of loan cancellation rates. Annual cancellation rates for VISTA/Peace Corps volunteers are slightly different: 15% for the first and second years, and 20% for the third and fourth years, for a total of 70% maximum cancellation.

If you're working at a job that would qualify you for loan forgiveness, your school should defer your loans. This means that interest won't accrue and you won't have to make monthly payments before your loan undergoes cancellation. Then, if you apply for loan cancellation and are approved, your loans will be forgiven at the rates described above. All in all, it's pretty simple!

Eligibility: When Do You Qualify for Forgiveness? 

There are many different professions and career paths that qualify for Perkins loan cancellation. Although you may not know exactly what you want to do when you graduate, you might have an idea of what jobs might (or might not) be congruent with your professional goals and interests. Hopefully, the following information will help you decide whether it's right for you to pursue a cancellation-eligible path.

The following chart outlines all post-graduation jobs you could take in order to qualify for loan cancellation. Most are eligible for 100% cancellation, if you work at that job long enough (refer to the chart I posted in the previous section for annual rates of cancellation). The best thing to do if you have any questions about this chart would be to contact your school's loan office or loan servicer.

 *For service that includes 8/14/2008, or began on or after that date.

How Do You Apply for Perkins Loan Forgiveness?

Have you gone through the above chart, and come to the conclusion that you may be eligible for Perkins loan cancellation at some point? That's great news! The process through which you actually apply for loan cancellation is pretty simple, but it requires you maintain a good channel of communication with your school.

Perkins loans may be government-backed, but your Perkins loan lender will actually be your school, not the federal government. If you want to get your loan forgiven, and you think you're eligible based on the eligibility circumstances described above, you have to apply for cancellation with your school. 

You should get annual forms for loan cancellation from the school where your Perkins loan was received; check in with your school's student loan or financial aid office about when and how to get these forms. 

After you graduate, you should contact your school at the beginning and end of each year to notify them about where, and in what subject area, you are working. This is important because you don't want to end up with any unpleasant surprises; if you thought you were working a job that you believed would qualify you for loan forgiveness, but didn't check in to confirm with your lender, you might find that you don't actually qualify. 

If you take away one piece of advice from this section, it's that you should actively communicate with your school about how and when you can arrange Perkins loan cancellation. 

As with most things in life, open communication with your school is the best policy when it comes to arranging for loan cancellation. 

How to Make the Most of Your Perkins Loans

Perkins loans come with a lot of built-in perks, which obviously include options for cancellation. Even if you're not sure whether you'll pursue a cancellation-eligible career in public service, you can still take steps to make the most of your Perkins loans. They don't accrue interest while you're in school, and the 5% interest rate is competitive (especially when compared to many private loans, with interest rates closer to 10%). In order to take advantage of the Perkins loan program, you just need to think ahead! Here are some tips and strategies to help you do just that. 

• By your senior year, ask yourself whether it's likely that you'll end up working a cancellation-eligible job. 
  
  • If you think you'll hold any of the positions described in the big chart above within the next 8-10 years, consider how long you'd be willing to work in that position to get part or all of your loans canceled. 

• Estimate how much Perkins loan debt you'll actually graduate with. 
  • If you'll graduate with a larger amount of Perkins loan debt, it might be a financially savvy option to seek out a cancellation-eligible position, even if you only cancel 15-30%.
  • If your Perkins loan debt is relatively small, and you're not interested in a public service job or career, it might not be worth it to you to work a cancellation-eligible job post-graduation. 

• Are you already on track to become a teacher, librarian, health care professional, or attorney? 
  • Even if your long-term career goals don’t involve working in a non-profit or public agency, starting off in a loan cancellation-eligible position could save you a lot of money in the long run (depending on your debt and, of course, professional interests and aspirations). 

• Don't consolidate your Perkins loans.
  • If you think you might qualify someday for loan cancellation, don't consolidate your Perkins loans - you'll lose loan cancellation options.
  • If you're fairly certain you won't ever qualify for cancellation, and you can consolidate at a better interest rate, it might be a good financial move.

Is working in public service a good fit for your long-term goals, both professional and financial? It's important to weight the pros and cons.

What's Next?

Perkins loan cancellation sounds pretty great, right? Learn more about Perkins loans and how to get one here.

Even if you don't qualify for a Perkins loan, there are other federal student aid programs that could help you pay for school. Check out our guides on Pell Grants, Direct Unsubsidized loans, and Direct Subsidized loans.