With outstanding student debt at more than $1 trillion, and with the rising cost of higher education guaranteeing that students will have to continue to borrow if they want to continue their schooling, one of the big issues right now is student loan debt forgiveness.
Student loan forgiveness programs abound, offering graduates hope that some of their debt, at least, can disappear. The good news is that there are programs that can help students reduce the amount they owe on their student loans. The bad news is that, like everything else in life, there are scams out there looking to take advantage.
“Buyer beware,” warns Jay Fleischman, an attorney and student debt specialist at ConsumerHelpCentral.com. “You’ve got to do your homework on repayment options, talk with your servicer, and ask questions.”
What is student loan forgiveness?
First, it helps to understand what student loan forgiveness entails. “Student loan forgiveness occurs when the federal forgives the unpaid balance of a federal student loan,” Fleischman explains. He points out that there are no federal programs that allow for the forgiveness of private student debt.
Your first step, then, is to determine which of your student loans are federal and which are private. There might not be much you can do about private student loans, but you might be able to make your federal loans more manageable.
Fleischman warns that it’s important to understand the difference between student loan forgiveness and other options, like forbearance and deferment. “Forbearance and deferment are programs that allow a student loan borrower to put their repayment obligations on hold for a period,” he says.
When you enter forbearance or deferment, you still have to repay your loans eventually. Student loan forgiveness allows you to avoid repaying some or all of your remaining balance. Fleischman also points out that income-based repayment offered by the federal government is also another program that isn’t the same as forgiveness (although there is the possibility of student loan forgiveness when you enter an income-based plan).
Legitimate student loan forgiveness, or scam?
“There are a number of ways to get your federal student loan loans forgiven,” says Fleischman. He points out that there are programs, such as those related to jobs in public service, teaching, and military service that can result in either having your loan balance forgiven, or in having your loans paid off on your behalf. It’s also possible to receive a discharge due to disability in some cases. Some of these programs require a commitment of some years in underserved areas to qualify your loans for forgiveness.
Additionally, says Fleischman, “Certain types of cancellations are available to military personnel, teachers, nurses, child care providers, or borrowers affected by the closure of a school.”
Fleischman also points out that participants in income-based repayment can potentially have balances that remain after 20 or 25 years forgiven. However, the conditions that must be met for this type of forgiveness are specific.
As you look at programs, look for resources from the U.S. Department of Education, or other official sources. Fleischman suggests avoiding “student loan counselors” who charge thousands of dollars to “help” them get into programs. Most student loan forgiveness programs can be entered free of charge.
One of the biggest scams going on right now, says Fleischman, is one that is advertised as “Obama Student Loan Forgiveness.” Those who enter this program find themselves enrolled in income-based repayment, which means there is no immediate student loan forgiveness. “It’s nothing more than a hook used by companies to get people to pay big money to get into the income-based program,” Fleischman says. The income-based program can help you better manage your payments and make your federal loans more affordable (the program doesn’t apply to private loans), but forgiveness is years away — if it comes at all.
Be skeptical of “counselors” claiming that they can help you get immediate student loan forgiveness. In many cases, they are simply signing you up for deferment or forbearance or charging you to get into a program you could get into for free on your own. The circumstances that lead to immediate student loan forgiveness are very specific, however. Any legitimate student loan forgiveness program you enter will likely require at least five to 10 years of service before you are eligible for discharge.
“People can do so much without paying thousands of dollars to a private company,” says Fleischman. Education is the key. Rather than clicking on dubious Internet ads, visit the StudentAid.ed.gov for information about student loan forgiveness programs. For private loans, you will need to talk to your servicer, but don’t expect too much.
Before you apply for a student loan forgiveness program, do your homework. There are legitimate programs available if you know where to look and if you educate yourself, Fleischman says. “Many of the so-called student loan counselors out there are preying on those without the information at the ready.”