Student Loan Forgiveness

Wouldn’t it be great if that Student Loan debt just vanished? It’s called Student Loan Forgiveness, and it does happen. But only rarely. Here are the details.

According to a recent estimate from the Consumer Financial Protection Bureau (CFPB), the current amount of US student debt is somewhere around 1.2 trillion dollars. Oh, sorry, we probably should have told you to put down your coffee before you read that. It’s okay. We’ll wait while you clean it up.

Now, where were we? Ah yes. 1.2 trillion dollars is a lot of money! And it’s not just the total amount of student loan debt that’s high; the average individual’s student debt load in 2016 is a whopping $35,000. It’s reaching the point of a full-blown crisis.

But see, there’s this thing called forgiveness. Maybe you remember it from kindergarten or that time you crashed your dad’s Volvo. Forgiveness is pretty great. And when it comes to loans and debt, forgiveness means that the lender basically writes off either all or part of your remaining balance. It’s a wiping clean of the financial slate, so to speak.

For someone who is drowning under an ocean of student debt, loan forgiveness might seem like the best way out. Here’s the thing, though: for student loans — especially private loans — forgiveness can be really, really really hard to come by.

Federal Loans

When you receive a student loan, the loan can either be from the federal government or it can be from someone else, most likely a bank. The most common kinds of federal loans are Perkins and Stafford loans and they usually come with lower interest rates than private loans.(1) They also offer some paths to loan forgiveness that private lenders do not.

Some of the ways that federal loans can be forgiven include:

  • Your school closes while you are attending or soon after you withdraw.
  • You are a public school teacher in a low-income area.
  • You find work in certain kinds of public service jobs.
  • You declare bankruptcy.
  • You become permanently disabled and unable to work.
  • You die.(1)

We cannot stress enough how much we don’t recommend those last two options. And even the other four come with stipulations. Your loan cannot be forgiven if you graduated right before your school closed. You have to work at least five years as a teacher or make 120 payments (10 years-worth) before your public service work makes you eligible. And the bankruptcy process still requires that you prove that repaying your student loans constitutes “an undue burden.” Even with federal loans, which are the easier kinds of loans to have forgiven, it’s not actually that easy.

Luckily, federal loans also offer a number of different payment plans, several of which are tied to the amount of income that the borrower earns.(2) Plus, those plans all come with end dates that are 20-25 years in the future, at which point the remaining debt load is discharged in full. (However, that discharged debt does count as income. So get ready for a a really fun tax bill.

Private Loans

Okay, bad news: Private Loans are almost never forgiven. Loans from private lenders are not subject to the same guidelines as loans issued by the federal government. These loans are eligible to be discharged through bankruptcy, but it’s pretty much in the same way that Joe Pizza Guy is eligible to run for President: he might meet the minimum requirements (age, citizenship) but he doesn’t stand a chance. Discharging loans through bankruptcy requires proving an “undue hardship” and a private lender is probably going to fight the discharge more vigorously than the federal government might.

With a private loan, the best option is to talk to your lender and negotiate. The CFPB has some handy aids to help you through the process and avoid long hold times and customer service runarounds.

Here’s the thing: signing up for any loan means that you have a responsibility to repay it on time and in full. But here’s the other thing: most people take out student loans when they are 18 and don’t fully comprehend that majoring in ceramics might not be worth $100,000 in debt. There is a lot of discussion happening right now about how to fix students loans, but so far nothing is for sure. What is for sure is that researching all your options, talking to your lender and seeing whether you are able to refinance your loans is the best way for you to move forward.

And for people with less-than-perfect credit who are looking to move forward and take control of their financial future: a safe, reliable loan from OppLoans is the best choice they can make. Click below to apply for a loan today.

References:

  1. “When it comes to paying for college, career school, or graduate school, federal student loans offer several advantages over private student loans.” Federal Student Aid: An Office of the U.S. Department of Education. Accessed February 17, 2016.  https://studentaid.ed.gov/sa/types/loans/federal-vs-private
  2. “Choose a federal student loan repayment plan that’s best for you.” Federal Student Aid: An Office of the U.S. Department of Education. Accessed February 17, 2016. https://studentaid.ed.gov/sa/repay-loans/understand/plans

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