If you have student loans, you have no doubt heard about student loan forgiveness. You have probably seen ads on TV promising instant ‘student loan relief’ or even received promotional mailers from companies telling you they know the ‘secret’ to eliminating your student loans. Of course, they are willing to share that secret – for a price.
The number of scams involving high-priced student loan debt relief is staggering. It has gotten so bad that awhile back, Illinois Attorney General Lisa Madigan filed suit against two of these so- called student debt relief companies, charging them with deceptive marketing. It is only a matter of time before other states start cracking down.
But with student loan debt over $1.3 trillion and nearly 7 million student loan barrowers in default, there isno doubt borrowers need help finding real solutions. The hard truth is, there are not magical, instant tricks to make student loans disappear, but there are options that can make forgiveness an achievable goal.\
Take a look at the myths and the facts regarding student loan forgiveness.
MYTH: All student loan barrowers are entitled to enroll in the ‘Obama Forgiveness Program.
FACT: First, there is nothing called the ‘Obama Forgiveness program’ or ‘Obama Loan Forgiveness.’ There are a number of federal student loan repayment programs introduced in recent years that offer the potential for loan forgiveness. These plans include:
- Income-Based Repayment (IBR): IBR is a federal repayment plan that allows you to make payments based on your income and family size. Payments are set for 12 months, and you must certify your income annually to stay on the program. Any balance remaining after 25 years on IBR will be forgiven. This forgiven balance may be subject to income taxes.
- Pay As You Earn (PAYE): Similar to IBR, PAYE is a federal repayment plan that allows you to make reduced payments based on income. Only certain newer borrowers will qualify for PAYE. You must certify your income annually. Any balance remaining after 20 years on PAYE will be forgive; the forgiven balance may be subject to income taxes.
- Public Service Loan Forgiveness (PSLF): This program provides opportunity for you to get out of your student loan debt in 10 years if you work in a public service job.
MYTH: If I qualify for loan forgiveness, my student loan debt will immediately disappear.
FACT: Most borrowers who qualify for federal student loan forgiveness still have to pay back a portion of their debt – from 10-25 years’ worth – after which the remaining balance is forgive. However, these programs are designed to keep your payments affordable.
MYTH: If I don’t qualify for federal student loan forgiveness, I can just pay someone to arrange student loan forgiveness.
FACT: This is simply not true. Any person or company telling you otherwise is not being honest about what they can offer. Remember – if something seems too good to be true, it proably is.
MYTH: Without student loan forgiveness, I am stuck with whatever repayment terms my loan servicer gives me.
FACT: Even if you don’t qualify for federal loan forgiveness under one of these plans, there are a number of repayment options, from Graduated and Extended Repayment to federal consolidation, that apply to much wider range of borrowers and may help make repayment more manageable.