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