When students start college, they are probably more concerned about how they’re going to cover the cost of tuition and classes than how they’re going to pay off student loans down the line. One problem at a time, right?
Of course, there are also students that carefully consider the loans they take out, the schools they attend, and their intended profession, all in an effort to reduce the costs of their education as much as possible.
For some students, a major part of their plans for eliminating education debt includes qualifying for student loan forgiveness. The premise behind these programs often assumes that college graduates make payments on their loans for a specified amount of time until certain qualifications are met to erase the remainder of the debt. While these programs can be rewarding for the borrowers who are eligible, there are, however, many misconceptions and potential pitfalls associated with banking on student loan forgiveness that could end up costing graduates in the long run. Here are a few common misconceptions cleared up.
Misconception #1: Everyone is Eligible for Loan Forgiveness
Although there are several instances in which students may become eligible for student loan forgiveness programs, you should not automatically assume that this is a possibility for you. For starters, loan forgiveness programs (as well as loan discharge or cancellation) generally apply to specific loans, specific professions, and/or specific sets of circumstances, according to the Office of Federal Student Aid.
Direct Loans, FFEL (Federal Family Education Loan) Program Loans, and Perkins Loans may all qualify for forgiveness, discharge, or cancellation, but only in certain circumstances, such as:
- Public service loan forgiveness
- Teacher loan forgiveness
- Perkins Loan cancellation and discharge
- Total and permanent disability discharge
- Discharge due to death
- Closed school discharge
- Unpaid refund discharge
- False certification of student eligibility or unauthorized payment discharge
- Borrower defense discharge
- Discharge in bankruptcy
It’s important to understand that these reasons may not apply to every type of loan, and some of them apply to very specific sets of circumstances. For example, the borrower defense discharge specifically relates to students seeking loan forgiveness because a school they attended misled them or engaged in other misconduct or violation of applicable state laws. This clearly doesn’t apply to every student, every school, or every loan.
Furthermore, you have to fill out an application for loan forgiveness, discharge, or cancellation and receive approval. Until then, you must continue to make payments in good faith, unless you are able to defer payments or you are granted forbearance in the meantime, according to the Office of Federal Student Aid.
If you want to find out if you qualify for student loan forgiveness, you need to do some research. It’s a good idea to check with lenders, with your school, and with the U.S. Department of Education, or more specifically, the Office of Federal Student Aid.
Misconception #2: Public Service Professions Are Automatically Eligible
According to the Office of Federal Student Aid, “The Public Service Loan Forgiveness (PSLF) Program forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer.” In addition, the Teacher Loan Forgiveness Program allows for forgiveness of Direct Subsidized Loans, Direct Unsubsidized Loans, Subsidized Federal Stafford Loans, and Unsubsidized Federal Stafford Loans and cancellation of Federal Perkins Loans.
However, there are several criteria attached to these forms of forgiveness. Simply becoming a teacher, a government employee, an employee of a non-profit organization, or a member of the Peace Corps doesn’t mean you automatically qualify for student loan forgiveness.
For example, in order to qualify for loan forgiveness under the Teacher Loan Forgiveness Program, teachers must work for five “complete and consecutive” years at a qualifying institution that serves low-income families, as well as meeting other criteria. Even so, teachers may only be eligible to receive forgiveness for a portion of loans, and this doesn’t include PLUS or private student loans.
Misconception #3: Once I’m Approved for Loan Forgiveness, It Can’t be Rescinded
Unfortunately, it’s not entirely uncommon for professionals that thought they were eligible for student loan forgiveness to find out they were wrong. According to a report issued by The New York Times, a legal filing by the U.S. Department of Education in March suggests that approvals issued by FedLoan, the administrator of the PSLF Program, may be subject to rescindment. This particular case has led to at least one lawsuit so far, but it’s not the only reason why graduates may find that forgiveness they were counting on is beyond reach.
As noted above, qualifying students must not only have the correct loan type to be eligible for forgiveness under the PSLF Program, but they must also meet criteria for qualifying employment and qualifying payments (and payment plans). After all that, borrowers still have to apply and continue to meet qualifications until such time as they’re approved. In other words, there are a lot of hoops to jump through, and a lot of ways to make mistakes that could make you ineligible for loan forgiveness.
Misconception #4: If I’m Not Eligible for Forgiveness, I’m Stuck Paying My Loans
This is partially true. If it turns out you’re not eligible for any form of forgiveness for your student loans, for whatever reason, you’re still responsible to repay the money you borrowed. Even filing for bankruptcy won’t automatically discharge student loan debt. Of course, when you’re in good shape financially and perfectly capable of paying loans, you will be required to do so. Unfortunately by the time that borrowers learn that they are no longer eligible for student loan forgiveness, they have often already accrued higher interest costs resulting from making smaller payments in the early stages of repayment.
The good news is that you have options to reduce your debt if loan forgiveness is not on the table. Once you have established a reliable income and credit history, you can, for example, explore the possibility of refinancing your student loans. This course of action gives you the opportunity to consolidate loans, reduce interest rates, and potentially reduce monthly and overall payments in the process. Whether you refinance your education debt or not, you can also cut down on the overall interest costs and time spent in repayment on your loans by making more than the minimum payments each month.
Even if you do everything you can to secure a path to loan forgiveness after a set number of years of faithful payments, you may at some point discover that forgiveness isn’t an option for you. Naturally, the earlier you can confirm your situation, the better. If you aren’t eligible for loan forgiveness, it’s best to explore other options early on so that you can save as much as possible through refinancing.