Student Loan Forgiveness: Is That Deal Smart or a Scam?

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Student loan debt has become a huge burden on recent college graduates, with figures from credit-reporting agency TransUnion showing that the average student loan balance approached $30,000 this year. The weight of college debt has led many young adults to defer many major life decisions, including buying a home, getting married and having children. It's therefore no wonder that the prospect of student loan forgiveness is so appealing.

Student loan forgiveness is a legitimate option in many cases. Unfortunately, the prospect of all the money involved has attracted plenty of con artists. If you want to avoid having scammers exploit you, you need to know the truth about student loan forgiveness, so you can distinguish the real deals from what's too good to be true.

The Facts About Student Loan Forgiveness

Multiple government programs help borrowers get some or all of their student loan debt forgiven. Some borrowers can take advantage of more than one program, although you have to look closely at the rules

  • The Department of Education's Public Service Loan Forgiveness Program covers those who work at least 30 hours a week for public service organizations, which include most government and nonprofit agencies. If they make 120 monthly loan payments, they then can apply for forgiveness. At that point, any remaining balance on eligible student loans, which include Direct Loans and Direct Consolidation Loans, is forgiven.
  • Teachers who first took out Direct Loans or Stafford Loans in October 1998 or later can also take advantage of the Teacher Loan Forgiveness Program. Under that program, once you've taught for five years in certain schools or educational service agencies that serve low-income families, you can get up to $17,500 in loans forgiven. To receive the full amount, you have to be a highly qualified secondary-school math or science teacher or special education teacher serving children with disabilities. Teachers in other areas can get up to $5,000.
  • Perkins Loan borrowers are eligible for several forgiveness and cancellation opportunities. Many educators in elementary and secondary schools, firefighters, law-enforcement officials, nurses and active-duty military personnel in hostile-fire areas qualify to have as much as 100 percent of their Perkins Loan balances canceled under certain conditions.

What Scammers Try to Sell

The sheer number of student loan borrowers in trouble has lured criminals. According to the Consumer Financial Protection Bureau, outstanding student loan debt is almost $1.2 trillion, and 7 million borrowers are in default on their student loans.

Scam artists attract victims by marketing official-sounding programs that don't exist. Despite the promise of free initial consultations, many student loan debt-relief companies charge for supposedly free services, and others never provide fee-schedule information to their clients before charging them. The National Consumer Law Center says that many student loan debt-relief companies charge a large payment just to start providing services and tack on an additional monthly fee, despite not always doing anything to justify those payments.

Even operations that look legitimate don't always act in your best interest. The NCLC found that in many cases, companies claiming to offer a full range of student loan debt relief options focus almost exclusively on getting you to agree to loan consolidation programs. While consolidating your student loans can be a smart move in certain circumstances, the danger is that you can give up attractive features of your original student loans if you consolidate -- including debt forgiveness opportunities.

Protect Yourself

The Consumer Financial Protection Bureau has a useful website for those struggling with student loans, taking you question by question through your existing loans and offering basic information about your options. The bureau also points you to other legitimate sources of information, helping you avoid falling into the clutches of con artists.

When you're struggling to manage your student loan debt, the promise of having your loan balances forgiven has huge appeal. But watch out for your own interests. Anything that doesn't ring true will set off warning bells in your head to alert you to a possible scam before it can hurt your finances.

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15 Important Expenses That You Forgot to Plan For
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Student Loan Forgiveness: Is That Deal Smart or a Scam?
Is your water bill due quarterly? Figure out how much you need to save each month to have enough to pay for the bill when it comes, and put that amount aside each month so you'll be prepared. Do the same for any bills due regularly but not monthly.
Bills you only have to pay once a year can be even harder to remember, so be sure to note things like property taxes, auto registration fees and insurance premiums and budget for them as well.
Annual subscriptions and memberships regularly trip up people's budgets. Be sure to set aside money each month for things like:
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Other expenses don't happen on a regular basis, but you can still predict the need to pay for them over the course of the year. Chief among these are repair and maintenance expenses, with the biggest ones being car-related costs (oil changes, inspections, new brakes or tires, etc.) and home costs (leaky faucets, spring-time yard work, etc.).
Some home repairs go beyond the scope of "routine" and require a significant amount of money in reserve. These can include replacing your roof, installing new windows or doing a major home renovation. You can anticipate the need for most of these repairs before you have to make them, so be sure to start budgeting for them in advance.
You also need to repair and maintain your body, so factor in medical costs like annual physicals, eye exams and dental checkups, as well as co-pays and prescriptions costs if you have any ongoing conditions.
If you plan to purchase any large items in the foreseeable future, from appliances to a new car, make sure you're putting aside enough each month to pay for them in cash. It's always best to pay for big-ticket items upfront rather than finance them (unless you can get a fantastic discount by financing and can pay the balance in full before any interest kicks in).
From birthdays to holidays, there are plenty of special occasions each year to budget for. Make sure to include:
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  • Wedding expenses (gifts, travel, hotel stays, etc.).
Your four-legged family members also need to be part of your budget. Pet care costs to consider include:
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Do you take an annual vacation? Travel twice a year to visit family for the holidays? Set aside money each month for any travel-related costs such as airfare, hotels, meals, rental cars and souvenirs.
Whether you run a business or simply a household, there are certain expenses you may need to plan for in the business category. These can include:
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Whether you give annually to a charity of your choice or like to have some money set aside for your friends' and family's fundraisers, make sure to allocate enough each month to cover these donations
A good budget allows for a little "free" spending money you can do with as you please. It can be $20 a month for fancy coffee at your favorite coffee shop or $100 a month to feed your favorite hobby. The amount doesn't matter so much as the fact that you're allowing yourself a little guilt-free fun to keep your budget from feeling too restrictive.
Depending on your lifestyle, your eating out and entertainment budget could be a little or a lot. Whether you prefer to have dinner out once a weekend or see a movie every few weeks, figure out how much you'd ideally like to have and then examine any budget categories you can tweak to make room for it. If you realize you need to cut back on your habits a little to save money, that's fine too-at least you're aware of it now so you can act accordingly.
Even if you're not a clothes horse, chances are there are certain items you'll need to purchase throughout the year. These can include:
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Calculate your annual spending on all clothing and accessories and divide that amount by 12 to determine how much you should be putting aside each month.

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