Despite historic student debt relief during the Biden administration, nearly 43 million Americans still carry student loan debt, and many struggle to repay their loans. In fact, more than 5 million borrowers are in default on their federal student loans, and the number of borrowers in default is expected to increase to as many as 10 million in the next few months. But recent changes in federal policy threaten to make loan repayment even more challenging.
As borrowers face new barriers to student debt relief, what role can state debt relief programs play in promoting financial stability for graduates and ensuring states can retain highly educated workforces?
As the Feds Step Out, How Much Can States Step In?
Congress just passed a law that would make loan repayment more expensive for borrowers and that would make it more difficult for struggling borrowers to get loan forgiveness. Meanwhile, in June 2025, the U.S. Department of Education convened a negotiated rulemaking committee to propose regulatory changes to narrow eligibility requirements for the Public Service Loan Forgiveness (PSLF) program—the program that provides loan forgiveness to borrowers who work in public services for ten years to—consistent with an executive order directing the department to rescind PSLF eligibility for employees of organizations engaged in certain “illegal activities.”
The efforts by Congress and the U.S. Department of Education to limit federal paths to loan forgiveness could lead to increased interest in state debt relief programs. Every U.S. state has at least one state-managed loan forgiveness or repayment assistance program, but unlike the federal loan forgiveness programs, which serve millions of borrowers, state level programs serve a relatively small number of borrowers in a limited number of fields such as health care and education. Right now, these state programs are insufficient to fill the gap that would be left if federal avenues for debt forgiveness are narrowed.
As of December 2024, more than 1 million borrowers had their loan balances discharged under PSLF. In contrast, state loan forgiveness programs operate on a much smaller scale. While all fifty U.S. states administer some form of targeted loan forgiveness program, in 2023, just nineteen states reported operating student loan forgiveness and/or repayment assistance programs funded through state appropriations, and the programs only provided loan relief to around 8,200 borrowers (see Table 1).
Table 1
|
2022–23 State-Funded Loan Forgiveness/Repayment Assistance Programs
|
| State |
Total Number of Programs |
Occupational/Special Requirements? |
Total State Expenditures |
Total Recipients across All Programs |
| Alaska |
1 |
Yes |
$71,017.00 |
2 |
| Arizona |
1 |
Yes |
$382,749.00 |
64 |
| Arkansas |
1 |
Yes |
$1,136,335.00 |
291 |
| Illinois |
5 |
Yes |
$3,023,607.00 |
492 |
| Iowa |
5 |
Yes |
$2,184,841.00 |
237 |
| Louisiana |
1 |
Yes |
$672,000.00 |
35 |
| Maine |
2 |
Yes |
$1,351,075.00 |
136 |
| Maryland |
3 |
Yes |
$740,763.00 |
96 |
| Mississippi |
1 |
Yes |
$814,418.00 |
214 |
| New Jersey |
1 |
Yes |
$494,779.00 |
19 |
| New Mexico |
11 |
Yes |
$10,432,900.00 |
1407 |
| New York |
8 |
Yes; except the NYS Get On Your Feet Loan Forgiveness Program |
$4,670,000.00 |
771 |
| North Carolina |
3 |
Yes |
$25,265,916.00 |
2628 |
| North Dakota |
1 |
Yes |
$320,645.00 |
82 |
| Tennessee |
3 |
Yes |
$206,250.00 |
42 |
| Texas |
6 |
Yes |
$9,302,900.00 |
986 |
| Washington |
2 |
Yes |
$5,422,605.00 |
434 |
| West Virginia |
1 |
Yes |
$1,264,257.00 |
154 |
| Wisconsin |
3 |
Yes |
$3,933,094.00 |
118 |
| Total |
59 |
|
$71,690,151.00 |
8,208 |
Source: “2022–23 National Association of State Student Grant and Aid Programs Annual Survey: Loan assumption/forgiveness programs,” National Association of State Student Grant and Aid Programs, https://www.nassgapsurvey.com/survey/program_finder/program_finder.asp.
|
The state programs are commonly created and maintained to address workforce shortages in fields such as education and health care within the state. For example, state lawmakers in Alaska are considering a program that will pay up to $24,000 in student debt for Alaskans who go out of state for college and return to work for the state or as public school teachers. The Washington legislature is likewise considering a bill to establish a loan repayment program for public defense attorneys and prosecutors. Last year, the Kentucky state legislature and county executives in Maryland established new forgiveness programs for educators.
State repayment programs are similar to PSLF in that they require borrowers to meet strict eligibility requirements to obtain relief. In many states, eligibility for loan forgiveness is limited to those working in specific fields such as health care and education or to those working in rural or high-need communities, which typically experience recruitment and retention challenges. Though data is lacking on how these state-funded loan forgiveness programs impact a borrower’s decision to pursue certain career paths or move to or return to a given state, it’s clear the states believe they are a meaningful recruitment tool.
Small but Mighty: Why State Debt Forgiveness and Repayment Programs Matter
College enrollment and student loan borrowing have accelerated over the past three decades, particularly among low-income students, first-generation students, female students, and students of color. As higher education has become more accessible, prices have also increased, however, with net prices at public, two- and four-year institutions showing sustained growth since the 1990s. Increasing access alongside rising tuitions and fees have resulted in historically underrepresented groups becoming disproportionately burdened with student loan debt. The economic impact of student loan debt and the burden of repayment can affect important life decisions, including where to live and work.
Some employment fields are more likely to have workers with student loan debt, and the challenges that debt represents. Even as more states adopt policies that eliminate degree requirements for many job postings, fields such as education and health care still carry postsecondary degree requirements for licensure, which frequently requires postsecondary training. As a result, many workers in these fields are forced to borrow to pay for training, ensuring some portion of these fields’ workforce is likely to carry student loan debt. While earning a degree produces financial and social benefits, borrowers in low-wage fields face an uphill battle in repayment. Black and Latino borrowers in particular face unique challenges when it comes to post-graduation employment outcomes and face higher rates of unemployment and underemployment than their peers. Student loan debt can impede financial progress such as home, car, or small business ownership. Weak labor market returns often lead borrowers of color to pause payments or pursue income driven-repayment plans to balance the financial burden of student loans and stave off the severe consequences of student loan default. State programs to provide debt relief to graduates in high-need fields can help a subset of these borrowers stay in the field and achieve financial stability. States benefit from these programs if they keep workers in needed fields or help put borrowers in a better position to contribute to the local economy.
States also fund recruitment and retention programs in an effort to prevent a “brain drain” in specific localities. Because student loan debt affects overall economic security, it can help fuel outmigration. Borrowers living in economically depressed regions or regions with high costs of living may find keeping up with monthly loan payments difficult. Research also suggests that borrowers in rural communities who carry student loan debt are more likely to relocate than their peers without student loans. Those rural student loan borrowers with outstanding balances who move to metropolitan areas—which generally offer greater job opportunities—also fare better economically in regard to student loan delinquency rates and lowering their balances. State legislatures sometimes use student loan forgiveness and repayment assistance as a way to sustain local labor markets. For example, Montana’s Rural Physician Incentive Program (MRPIP) provides loan relief to pay the educational debts of physicians who practice in rural or medically underserved areas or provide care to underserved populations.
State-administered loan forgiveness programs can also help to address inequities in how debt affects different demographic groups. For example, Black students are more likely to borrow student loans, and on average, Black graduates with a bachelor’s degree borrow substantially more than their counterparts, potentially amplifying the benefits of state-administered loan forgiveness for this group. Black workers are also overrepresented in public sector and nonprofit sector employment, and therefore may be more likely than other workers to qualify for state-administered debt relief programs. Women are also disproportionately affected by student debt: women are more likely to hold student debt and carry larger balances than men. Women also face unique challenges in repayment: female-dominated careers pay less as gender gap persists, and as women increasingly assume jobs in fields that historically have employed primarily men, the pay typically drops. Women are also overrepresented in public sector fields, which may also mean that they are more likely to qualify for state-administered debt relief programs.
How State Loan Relief Programs Are Funded
The funding mechanisms for state target loan forgiveness programs vary considerably. As previously mentioned, while all states run some type of program, state legislatures appropriate funds for the state debt relief programs in only nineteen states; in the others, states fund debt relief programs through federal grants, including grants from the Health Resources and Services Administration (HRSA).
HRSA is a federal agency focused on ensuring access to health care services for communities in need that have limited access to health care. HRSA’s National Health Service Corps (NHSC) currently offers three loan repayment programs that are administered by states. The program is vast, with HRSA awarding nearly $100 million in American Rescue Plan (ARP) funds across forty-six states, Washington, D.C., and three U.S. territories. The state-NHSC loan repayment programs operate under a common set of federal rules, including a substantial penalty for those who don’t fulfill their two-year minimum service requirement, but the disciplines that are eligible and total amount of repayment assistance borrowers can receive varies by state. NHSC provides cost-sharing grants to U.S. states and territories which allow states to operate repayment programs. Typically, states must match the federal funds, but during the COVID-19 pandemic, Congress passed legislation that provided a one-time $800 million appropriation to expand programs awards and waived the state match requirement through 2025.
It is worth noting that state student debt relief programs may soon encounter severe funding challenges—both those that are wholly funded by states and those that use state matches for federal funding. The reconciliation bill recently passed by Congress cuts federal funding for government assistance programs such as Medicaid and the Supplemental Nutrition Assistance Program (SNAP), which will force states to compensate for these cuts through tax hikes or reduced services. This will make funding for state debt forgiveness/repayment assistance programs vulnerable to cuts. When fiscal pressures are high and states face budget shortfalls, higher education is typically the one of the first state budget categories to experience cuts. State funding for loan relief is already inconsistent: for example, the Wyoming Student Loan Repayment Program (SLRP) was not funded in 2017–18 and received just $200,416 in funding in 2024. New Jersey’s Student Loan Redemption Program for Teachers, which provides participants up to $5,000 in student loan redemption per year for up to four years, is slated to lose almost all of its funding for the next cohort in 2026, according to Governor Phil Murphy’s proposed state budget.
How States Use Debt Relief Programs to Help Recruit and Retain Workers
State Loan Repayment Programs are typically intended to function as a recruitment and/or retention tool to incentivize workers to enter or stay in positions that are in short supply, such as teachers or health care workers. An example of one such program is Wyoming’s SLRP. Wyoming’s SLRP is financed through federal funds awarded by HRSA. Another example is the Colorado Health Service Corps, which is a unique public–private partnership that utilizes federal, state, and philanthropic dollars to offer awards up to $120,000 in payments on federal or private education loans for physicians and dentists who make a three-year commitment to work full-time in designated underserved communities. Licensed social workers, physician assistants, and advanced practice nurses are eligible to receive up to $90,000 in the program.
Some state debt relief programs offer residents forgivable education loans if they remain in the state post-graduation and work in professions where there is a worker shortage.
Some state debt relief programs offer residents forgivable education loans if they remain in the state post-graduation and work in professions where there is a worker shortage. For example, North Carolina’s Forgivable Education Loans for Service provide loans for students to enroll in postsecondary education and provide a discharge of one academic year’s loan after one year of full-time employment in an approved role. Students agree to seek loan forgiveness through employment in an approved role or to repay the loan. Students with state-funded forgivable loans are still liable for that loan even if they receive PSLF for any federal student loan borrowing.
State programs differ from the federal PSLF debt relief programs in several ways. Under the federal PSLF program, borrowers make payments over a ten-year period of employment by a nonprofit or government employer in order to qualify to have the remainder of their loan balance forgiven. By contrast, in many SLRPs, balances are not “forgiven” after a period of repayment; instead, the program provides a mechanism for employers or state agencies to make repayments on federal and/or private student loans while the borrower is employed in a qualifying position. While private student loans comprise a small percentage of overall student loan borrowing, changes to the federal loan program may result in increased nonfederal borrowing. As a result, SLRPs that provide repayment assistance on private education debt may provide a more viable path out of indebtedness.
North Dakota’s Career Builders Loan Repayment program is another public–private partnership intended to address employer and community needs wherein $1 of state funding is provided for every $1 of matching funds provided by the borrower’s employer. Newly hired student loan borrowers with federal or private student loans employed in a high need occupation in North Dakota can receive up to $5,667 per year, which is applied to their outstanding student loan principal. Likewise, veterinarians in Wyoming who provide food animal care can be repaid up to 100 percent of their outstanding educational loans through the Veterinarian Loan Repayment Program, with a maximum annual award of $30,000. The state requires 25 percent of that money be provided through matching funds from the borrower’s employer.
Local employers and government agencies are not the only entities supporting the administration of state forgiveness programs. The Western Interstate Commission for Higher Education (WICHE), a multi-state higher education compact, collaborates with several states on a loan-for-service program wherein students attend certain out-of-state health programs through a Professional Student Exchange Program. Students can receive substantial tuition support in the form of a loan from their home state through the exchange program, though some states require the recipient to return to the home state after their course of study. In New Mexico for example students who return and work in dentistry, veterinary medicine, optometry, or podiatry can have their entire loan balance forgiven if they fulfill their service obligations and those who do not are assessed a penalty.
How the State Loan Forgiveness/Repayment Programs May Differ from State to State
While many state-administered loan forgiveness/repayment assistance programs are similar in that they forgive loans to borrowers working in specific high need and/or high skill fields, they may differ in the way that they are operated. For example, while the years of service requirement for state-administered programs are shorter than the ten years required for PSLF the maximum repayment assistance/forgiveness varies considerably by state and program. Furthermore, the administration of these loans can also differ from state to state.
Though some state administered programs only offer forgiveness on federal loans, others allow funds to be used to pay down private student loan debt. In New Jersey, for example, nursing faculty who teach at eligible institutions of higher education can qualify for up to $10,000 per year in “student loan redemption” toward the principal and interest accrued on federal loans or state-sanctioned NJCLASS student loans.
State programs that allow borrowers to receive repayment assistance on private loans, particularly in fields that require an advanced degree for licensure, may become more popular as Congress prepares to eliminate the Federal Direct Graduate PLUS Loan program. The recently passed reconciliation law would impose a $100,000 lifetime cap on most graduate borrowing, with borrowing by students in professional programs such as law and medicine capped at $200,000. New lifetime borrowing limits in the federal Direct Loan program would also mean that some students would run out of federal Direct Loans eligibility before they even enter graduate school. Many students and families with financial need beyond these limits will have to turn to the private student loan market.
Whether forgiveness is considered taxable income also varies by state. For example, nine states do not have a state income tax, so any state-sponsored loan forgiveness would not be taxed. In Pennsylvania, state law exempts some forms of student loan forgiveness from state tax. In Minnesota which administers the largest number of forgiveness programs, forgiveness programs may be subject to state and federal tax.
Should States Expand or Reconfigure Debt Relief Programs?
Congress’s recently passed reconciliation law includes several changes to the income-driven repayment (IDR) program which will drive up repayment costs for some borrowers and may make state-based loan repayment assistance and forgiveness programs more appealing or necessary to borrowers. State-based forgiveness programs require a shorter service commitment than PSLF, and borrowers who are paying more due to changes to IDR options may be more likely to seek other opportunities for debt relief.
However, the reconciliation law’s cuts to safety net programs will put more pressure on state budgets and may spur some states to reallocate funding away from state loan repayment and forgiveness programs. This moment creates new opportunities for states to ensure their budgets reflect their priorities. As budget constraints push state governments to make difficult choices, states should preserve investment in higher education to support economic growth in their state. States should also consider ways to subsidize tuition for programs that prepare workers for high need careers. For example, first dollar, targeted free tuition college programs help address rising tuition costs and states’ recruitment and retention goals.
Some states are already using this model. For example, Michigan’s longtime Kalamazoo Promise program covers 100 percent of tuition and mandatory fees for students who graduate from Kalamazoo Public Schools and attend a two- or four-year tuition in the state. To address teacher shortages in Newark, a free dua- enrollment career and technical education (CTE) program, Red Hawks Rising Teacher Academy, was developed as part of a public–private partnership between Newark Public Schools, Montclair State University, and the American Federation of Teachers. Whether through loan relief programs or targeted tuition subsidies, states are wise to make investments that ensure that students can afford training in high-demand careers.
Tags: student debt, student loan debt, college affordability, student loan
Can State Student Debt Relief Programs Make a Difference?
Despite historic student debt relief during the Biden administration, nearly 43 million Americans still carry student loan debt, and many struggle to repay their loans. In fact, more than 5 million borrowers are in default on their federal student loans, and the number of borrowers in default is expected to increase to as many as 10 million in the next few months. But recent changes in federal policy threaten to make loan repayment even more challenging.
As borrowers face new barriers to student debt relief, what role can state debt relief programs play in promoting financial stability for graduates and ensuring states can retain highly educated workforces?
As the Feds Step Out, How Much Can States Step In?
Congress just passed a law that would make loan repayment more expensive for borrowers and that would make it more difficult for struggling borrowers to get loan forgiveness. Meanwhile, in June 2025, the U.S. Department of Education convened a negotiated rulemaking committee to propose regulatory changes to narrow eligibility requirements for the Public Service Loan Forgiveness (PSLF) program—the program that provides loan forgiveness to borrowers who work in public services for ten years to—consistent with an executive order directing the department to rescind PSLF eligibility for employees of organizations engaged in certain “illegal activities.”1
The efforts by Congress and the U.S. Department of Education to limit federal paths to loan forgiveness could lead to increased interest in state debt relief programs. Every U.S. state has at least one state-managed loan forgiveness or repayment assistance program, but unlike the federal loan forgiveness programs, which serve millions of borrowers, state level programs serve a relatively small number of borrowers in a limited number of fields such as health care and education. Right now, these state programs are insufficient to fill the gap that would be left if federal avenues for debt forgiveness are narrowed.
As of December 2024, more than 1 million borrowers had their loan balances discharged under PSLF.2 In contrast, state loan forgiveness programs operate on a much smaller scale. While all fifty U.S. states administer some form of targeted loan forgiveness program, in 2023, just nineteen states reported operating student loan forgiveness and/or repayment assistance programs funded through state appropriations, and the programs only provided loan relief to around 8,200 borrowers (see Table 1).
Table 1
2022–23 State-Funded Loan Forgiveness/Repayment Assistance Programs
Source: “2022–23 National Association of State Student Grant and Aid Programs Annual Survey: Loan assumption/forgiveness programs,” National Association of State Student Grant and Aid Programs, https://www.nassgapsurvey.com/survey/program_finder/program_finder.asp.
The state programs are commonly created and maintained to address workforce shortages in fields such as education and health care within the state. For example, state lawmakers in Alaska are considering a program that will pay up to $24,000 in student debt for Alaskans who go out of state for college and return to work for the state or as public school teachers. The Washington legislature is likewise considering a bill to establish a loan repayment program for public defense attorneys and prosecutors. Last year, the Kentucky state legislature and county executives in Maryland established new forgiveness programs for educators.
State repayment programs are similar to PSLF in that they require borrowers to meet strict eligibility requirements to obtain relief. In many states, eligibility for loan forgiveness is limited to those working in specific fields such as health care and education or to those working in rural or high-need communities, which typically experience recruitment and retention challenges. Though data is lacking on how these state-funded loan forgiveness programs impact a borrower’s decision to pursue certain career paths or move to or return to a given state, it’s clear the states believe they are a meaningful recruitment tool.
Small but Mighty: Why State Debt Forgiveness and Repayment Programs Matter
College enrollment and student loan borrowing have accelerated over the past three decades, particularly among low-income students, first-generation students, female students, and students of color. As higher education has become more accessible, prices have also increased, however, with net prices at public, two- and four-year institutions showing sustained growth since the 1990s. Increasing access alongside rising tuitions and fees have resulted in historically underrepresented groups becoming disproportionately burdened with student loan debt. The economic impact of student loan debt and the burden of repayment can affect important life decisions, including where to live and work.
Some employment fields are more likely to have workers with student loan debt, and the challenges that debt represents. Even as more states adopt policies that eliminate degree requirements for many job postings, fields such as education and health care still carry postsecondary degree requirements for licensure, which frequently requires postsecondary training. As a result, many workers in these fields are forced to borrow to pay for training, ensuring some portion of these fields’ workforce is likely to carry student loan debt. While earning a degree produces financial and social benefits, borrowers in low-wage fields face an uphill battle in repayment. Black and Latino borrowers in particular face unique challenges when it comes to post-graduation employment outcomes and face higher rates of unemployment and underemployment than their peers. Student loan debt can impede financial progress such as home, car, or small business ownership. Weak labor market returns often lead borrowers of color to pause payments or pursue income driven-repayment plans to balance the financial burden of student loans and stave off the severe consequences of student loan default. State programs to provide debt relief to graduates in high-need fields can help a subset of these borrowers stay in the field and achieve financial stability. States benefit from these programs if they keep workers in needed fields or help put borrowers in a better position to contribute to the local economy.
States also fund recruitment and retention programs in an effort to prevent a “brain drain” in specific localities. Because student loan debt affects overall economic security, it can help fuel outmigration. Borrowers living in economically depressed regions or regions with high costs of living may find keeping up with monthly loan payments difficult. Research also suggests that borrowers in rural communities who carry student loan debt are more likely to relocate than their peers without student loans. Those rural student loan borrowers with outstanding balances who move to metropolitan areas—which generally offer greater job opportunities—also fare better economically in regard to student loan delinquency rates and lowering their balances. State legislatures sometimes use student loan forgiveness and repayment assistance as a way to sustain local labor markets. For example, Montana’s Rural Physician Incentive Program (MRPIP) provides loan relief to pay the educational debts of physicians who practice in rural or medically underserved areas or provide care to underserved populations.
State-administered loan forgiveness programs can also help to address inequities in how debt affects different demographic groups. For example, Black students are more likely to borrow student loans, and on average, Black graduates with a bachelor’s degree borrow substantially more than their counterparts, potentially amplifying the benefits of state-administered loan forgiveness for this group. Black workers are also overrepresented in public sector and nonprofit sector employment, and therefore may be more likely than other workers to qualify for state-administered debt relief programs. Women are also disproportionately affected by student debt: women are more likely to hold student debt and carry larger balances than men. Women also face unique challenges in repayment: female-dominated careers pay less as gender gap persists, and as women increasingly assume jobs in fields that historically have employed primarily men, the pay typically drops. Women are also overrepresented in public sector fields, which may also mean that they are more likely to qualify for state-administered debt relief programs.
How State Loan Relief Programs Are Funded
The funding mechanisms for state target loan forgiveness programs vary considerably. As previously mentioned, while all states run some type of program, state legislatures appropriate funds for the state debt relief programs in only nineteen states; in the others, states fund debt relief programs through federal grants, including grants from the Health Resources and Services Administration (HRSA).
HRSA is a federal agency focused on ensuring access to health care services for communities in need that have limited access to health care. HRSA’s National Health Service Corps (NHSC) currently offers three loan repayment programs that are administered by states. The program is vast, with HRSA awarding nearly $100 million in American Rescue Plan (ARP) funds across forty-six states, Washington, D.C., and three U.S. territories. The state-NHSC loan repayment programs operate under a common set of federal rules, including a substantial penalty for those who don’t fulfill their two-year minimum service requirement, but the disciplines that are eligible and total amount of repayment assistance borrowers can receive varies by state. NHSC provides cost-sharing grants to U.S. states and territories which allow states to operate repayment programs. Typically, states must match the federal funds, but during the COVID-19 pandemic, Congress passed legislation that provided a one-time $800 million appropriation to expand programs awards and waived the state match requirement through 2025.
It is worth noting that state student debt relief programs may soon encounter severe funding challenges—both those that are wholly funded by states and those that use state matches for federal funding. The reconciliation bill recently passed by Congress cuts federal funding for government assistance programs such as Medicaid and the Supplemental Nutrition Assistance Program (SNAP), which will force states to compensate for these cuts through tax hikes or reduced services. This will make funding for state debt forgiveness/repayment assistance programs vulnerable to cuts. When fiscal pressures are high and states face budget shortfalls, higher education is typically the one of the first state budget categories to experience cuts. State funding for loan relief is already inconsistent: for example, the Wyoming Student Loan Repayment Program (SLRP) was not funded in 2017–18 and received just $200,416 in funding in 2024. New Jersey’s Student Loan Redemption Program for Teachers, which provides participants up to $5,000 in student loan redemption per year for up to four years, is slated to lose almost all of its funding for the next cohort in 2026, according to Governor Phil Murphy’s proposed state budget.
How States Use Debt Relief Programs to Help Recruit and Retain Workers
State Loan Repayment Programs are typically intended to function as a recruitment and/or retention tool to incentivize workers to enter or stay in positions that are in short supply, such as teachers or health care workers. An example of one such program is Wyoming’s SLRP. Wyoming’s SLRP is financed through federal funds awarded by HRSA. Another example is the Colorado Health Service Corps, which is a unique public–private partnership that utilizes federal, state, and philanthropic dollars to offer awards up to $120,000 in payments on federal or private education loans for physicians and dentists who make a three-year commitment to work full-time in designated underserved communities. Licensed social workers, physician assistants, and advanced practice nurses are eligible to receive up to $90,000 in the program.
Some state debt relief programs offer residents forgivable education loans if they remain in the state post-graduation and work in professions where there is a worker shortage. For example, North Carolina’s Forgivable Education Loans for Service provide loans for students to enroll in postsecondary education and provide a discharge of one academic year’s loan after one year of full-time employment in an approved role. Students agree to seek loan forgiveness through employment in an approved role or to repay the loan. Students with state-funded forgivable loans are still liable for that loan even if they receive PSLF for any federal student loan borrowing.
State programs differ from the federal PSLF debt relief programs in several ways. Under the federal PSLF program, borrowers make payments over a ten-year period of employment by a nonprofit or government employer in order to qualify to have the remainder of their loan balance forgiven. By contrast, in many SLRPs, balances are not “forgiven” after a period of repayment; instead, the program provides a mechanism for employers or state agencies to make repayments on federal and/or private student loans while the borrower is employed in a qualifying position. While private student loans comprise a small percentage of overall student loan borrowing, changes to the federal loan program may result in increased nonfederal borrowing. As a result, SLRPs that provide repayment assistance on private education debt may provide a more viable path out of indebtedness.
North Dakota’s Career Builders Loan Repayment program is another public–private partnership intended to address employer and community needs wherein $1 of state funding is provided for every $1 of matching funds provided by the borrower’s employer. Newly hired student loan borrowers with federal or private student loans employed in a high need occupation in North Dakota can receive up to $5,667 per year, which is applied to their outstanding student loan principal. Likewise, veterinarians in Wyoming who provide food animal care can be repaid up to 100 percent of their outstanding educational loans through the Veterinarian Loan Repayment Program, with a maximum annual award of $30,000. The state requires 25 percent of that money be provided through matching funds from the borrower’s employer.
Local employers and government agencies are not the only entities supporting the administration of state forgiveness programs. The Western Interstate Commission for Higher Education (WICHE), a multi-state higher education compact, collaborates with several states on a loan-for-service program wherein students attend certain out-of-state health programs through a Professional Student Exchange Program. Students can receive substantial tuition support in the form of a loan from their home state through the exchange program, though some states require the recipient to return to the home state after their course of study. In New Mexico for example students who return and work in dentistry, veterinary medicine, optometry, or podiatry can have their entire loan balance forgiven if they fulfill their service obligations and those who do not are assessed a penalty.
How the State Loan Forgiveness/Repayment Programs May Differ from State to State
While many state-administered loan forgiveness/repayment assistance programs are similar in that they forgive loans to borrowers working in specific high need and/or high skill fields, they may differ in the way that they are operated. For example, while the years of service requirement for state-administered programs are shorter than the ten years required for PSLF the maximum repayment assistance/forgiveness varies considerably by state and program. Furthermore, the administration of these loans can also differ from state to state.
Though some state administered programs only offer forgiveness on federal loans, others allow funds to be used to pay down private student loan debt. In New Jersey, for example, nursing faculty who teach at eligible institutions of higher education can qualify for up to $10,000 per year in “student loan redemption” toward the principal and interest accrued on federal loans or state-sanctioned NJCLASS student loans.
State programs that allow borrowers to receive repayment assistance on private loans, particularly in fields that require an advanced degree for licensure, may become more popular as Congress prepares to eliminate the Federal Direct Graduate PLUS Loan program. The recently passed reconciliation law would impose a $100,000 lifetime cap on most graduate borrowing, with borrowing by students in professional programs such as law and medicine capped at $200,000. New lifetime borrowing limits in the federal Direct Loan program would also mean that some students would run out of federal Direct Loans eligibility before they even enter graduate school. Many students and families with financial need beyond these limits will have to turn to the private student loan market.
Whether forgiveness is considered taxable income also varies by state. For example, nine states do not have a state income tax, so any state-sponsored loan forgiveness would not be taxed. In Pennsylvania, state law exempts some forms of student loan forgiveness from state tax. In Minnesota which administers the largest number of forgiveness programs, forgiveness programs may be subject to state and federal tax.
Should States Expand or Reconfigure Debt Relief Programs?
Congress’s recently passed reconciliation law includes several changes to the income-driven repayment (IDR) program which will drive up repayment costs for some borrowers and may make state-based loan repayment assistance and forgiveness programs more appealing or necessary to borrowers. State-based forgiveness programs require a shorter service commitment than PSLF, and borrowers who are paying more due to changes to IDR options may be more likely to seek other opportunities for debt relief.
However, the reconciliation law’s cuts to safety net programs will put more pressure on state budgets and may spur some states to reallocate funding away from state loan repayment and forgiveness programs. This moment creates new opportunities for states to ensure their budgets reflect their priorities. As budget constraints push state governments to make difficult choices, states should preserve investment in higher education to support economic growth in their state. States should also consider ways to subsidize tuition for programs that prepare workers for high need careers. For example, first dollar, targeted free tuition college programs help address rising tuition costs and states’ recruitment and retention goals.
Some states are already using this model. For example, Michigan’s longtime Kalamazoo Promise program covers 100 percent of tuition and mandatory fees for students who graduate from Kalamazoo Public Schools and attend a two- or four-year tuition in the state. To address teacher shortages in Newark, a free dua- enrollment career and technical education (CTE) program, Red Hawks Rising Teacher Academy, was developed as part of a public–private partnership between Newark Public Schools, Montclair State University, and the American Federation of Teachers. Whether through loan relief programs or targeted tuition subsidies, states are wise to make investments that ensure that students can afford training in high-demand careers.
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Tags: student debt, student loan debt, college affordability, student loan