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How Military Student Loan Forgiveness and Repayment Works

Kailey Fralick, The Motley Fool

Learn about all your options for paying off your student loans if you’re a military member or interested in joining the military.
Image credit: Getty Images.

military servicemember with handful of money

Image source: Getty Images

Student loan debt is a pervasive problem in our society, and even our men and women in uniform are not exempt. But the good news for these individuals is that there are a number of military loan forgiveness and repayment programs to help them pay down their student loan debt faster. You may even be able to get your student loans completely discharged.

-Below, I explain the various student loan forgiveness and repayment programs available to military members and veterans. It's worth noting that all of this information applies to federal student loans. Private student loans are issued by private banks and the government has no authority to discharge these debts.

Military College Loan Repayment Program (CLRP)

The Military College Loan Repayment Program (CLRP) is available to students who have already accumulated student loan debt and are interested in entering the active-duty military. Military personnel coming off of active duty and joining the reserves may also be eligible.

Additional eligibility requirements include:

  • Being in a Military Occupational Specialty (MOS) that's eligible for CLRP
  • Having a high school diploma -- not a GED or equivalency test
  • Having a qualifying student loan (Federal Direct Loan, Federal Family Education Loan, or Perkins Loan that is not in default)
  • Scoring at least a 50 on the Armed Forces Qualification Test
  • Requesting CLRP participation on your enlistment contract

The amount of money you can get through CLRP depends on which branch of the military you're in and whether you're on active duty or in the reserves. Here's an overview of how CLRP works for each branch of the military:

  • Army: Active-duty Army members are eligible for up to $65,000 in student loan repayment assistance. You must agree to enlist for at least three years. After your first year of service, the Army will pay 33.33% of your outstanding principal student loan balance or $1,500, whichever is greater. It will also pay you one of these two amounts for each of the next two years.
  • Army Reserves: Army Reserve members may receive up to $20,000 in student loan repayment assistance. You must enlist for at least six years and after your first year, the Army will pay off 15% of your outstanding loan balance or $1,500, whichever is greater, annually while you are a member of the Army Reserve or until you reach the $20,000 cap.
  • Navy: Navy members are eligible for the same benefits as Army members, except they must agree to at least four years of service when they enroll.
  • Navy Reserves: The CLRP program for Navy Reserve members is similar to the one for Army Reserve members, except the lifetime benefit is capped at $10,000 instead of $20,000.
  • Air Force: Air Force members may qualify for up to $10,000 in student loan repayment assistance if they enlist for at least three years. After your first year, it will pay the greater of 33.33% of your outstanding principal balance or $1,500. You're paid every year after that until your loan is paid off or you hit the $10,000 cap.
  • Marines: Unfortunately, there is no CLRP for Marines.
  • National Guard: National Guard members could receive up to $50,000 in student loan repayment assistance when they enlist for at least six years. Qualification requirements are stricter than for the other branches of the military and differ for prior-service members, non-prior service soldiers, and current National Guard members.
  • Coast Guard: The Coast Guard offers up to $30,000 in student loan repayment assistance to new members. You qualify for up to $10,000 after your first year of service and can receive benefits up to six years if you don't hit the $30,000 ceiling first.

Note that CLRP only gives you money toward your principal loan balance. It won't pay for any interest that the loan accrues, so you'll still have to pay this off on your own. However, as the principal balance decreases, so will the rate at which the overall balance grows, so it will still save you money over the long run.

The money you receive through CLRP is taxable, so it could raise your income tax liability for the years in which you receive the repayment assistance. The government automatically holds back 28% of its payment to you, so this should cover your tax liability in most cases. But this also means you won't receive the full amounts listed above because part of that money goes right to taxes.

National Defense Student Loan Discharge (NDSLD)

You may be eligible for partial student loan cancellation under the National Defense Student Loan Discharge (NDSLD) program if you served for at least one full year in an imminent danger or hostile fire area.

If you believe you qualify for NDSLD, all you need to do is fill out the appropriate paperwork and write a letter explaining why you believe you qualify for the program. You probably won't have your loan fully discharged and the amount canceled will depend in part on your student loan servicer. Contact your servicer directly to determine how much of your student debt it may forgive.

Veterans Total and Permanent Disability Discharge

If you become permanently disabled while in the line of duty, the government will discharge all of your federal student loans. In order to qualify, you must have a documented service-related disability and be deemed permanently disabled by the Department of Veterans Affairs.

Public Service Loan Forgiveness (PSLF)

Public Service Loan Forgiveness (PSLF) isn't only for military members. Individuals like doctors, teachers, and government workers can also take advantage of this program. In order to qualify, you must have a qualifying federal student loan and a qualifying repayment plan. You must also work for a qualifying employer for 10 years, submit the appropriate paperwork annually, and make 120 on-time student loan payments.

Once all this is done, you can submit an application for PSLF and the federal government will forgive any outstanding loan balance. Unlike CLRP, any money you receive under PSLF doesn't count toward your taxable income for the year, so it won't raise your tax bill.

Military members can qualify for PSLF, so this is an option worth exploring if you don't qualify for CLRP or if you've exhausted the benefits you're entitled to under CLRP. But if you intend to pursue PSLF, you're better off enrolling soon after you graduate so your 10-year clock starts right away.

If you're a military member, a veteran, or a college student interested in joining the military, you may qualify for military student loan forgiveness. Explore all of your options before you enroll and make sure you understand all of the rules and eligibility requirements for the forgiveness program you're interested in.

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