Every year, thousands of students in the US, apply for loans to complete their education. These student loans, simply put, are a form of financial aid to the student community, which has to be repaid back. Around 60 to 70% of the student population here in the US, depends on this financial aid from the federal government.
These loans have a great role to play in ensuring that students have access to higher education. However, it is also a well-known fact that these loans continue even after the students have graduated from college, making the newly graduated heavily debt ridden.
The following is a detailed look at the types of loans that are available to the students, Understanding the Federal Loans, What the real Obama federal loan forgiveness programs means to students across America, myths busted about the fake scams and the complete list of Student Loan Forgiveness Programs.
Types of student loans:
Broadly the student loans in the US are divided into two categories, which are the Federal Loans and the Private Student Loans.
These loans are given to students, regardless of the credit history of the student. The loans are generally automatically approved, if the student meets the requirements of the academic program. The federal direct student loans come to the student directly from the US treasury (public capital), through the channels of the respective departments of the US Treasury, the US Department of Education and the colleges.
Private Student Loans:
These loans are given directly to the students at a higher rate of interest when compared to the federal loans.
Understanding the Federal loans
The Federal loans offer a variety of benefits to students. Doing a little research and legwork, often pays off. Opting for the federal student loan gives the students the ability to qualify for the President student loan forgiveness program. At times, under certain conditions, the federal student loans can be written off by the federal government, which implies that students need not repay back these loans.
A little research is required to understand the various types of federal loans available to the student community, their eligibility criteria and how to get these loans. Very broadly, the federal student loans are classified as under:
Direct Subsidized Loans
Direct Unsubsidized Loans
Parent PLUS Loans
Grad PLUS Loans
Federal Consolidation Loans
The 1st 5 options fall under the William D. Ford Federal Direct Loan Program, the largest federal student program, with the US Department of Education being the lender. Under the Perkins loan program, the school is the lender and it is a program for graduates and undergraduates with exceptional financial need.
To avail the federal student aid, certain basic eligibility criteria has to be met with, such as being a citizen of the US, academic qualifications, valid social security number, etc. There is no age limit to receive the federal student aid. It always makes sense to ensure that students stay eligible for the federal student aid, by not defaulting on the student loan and by maintaining satisfactory academic progress in college or in the career school.
Obama Student Loan Forgiveness Decoded:
The Obama administration has come up with new rules recently, if and when enacted,would pave the way for thousands of student loans to be forgiven by the federal government. There are many existing Federal laws that allow students to apply for student loan forgiveness, provided they meet the eligibility criteria. However, many students who are burdened by debt do not even know of the various options that can be viable to them because the process is difficult.
The US Department of education is working on expanding the eligibility criteria for the student’s school and college loan forgiveness, by providing loan relief. The various criteria that are to be included are any breach of contract, court judgements against a school or any misrepresentation made by the school with respect to the job prospects or the educational offerings given by the school.
In the year 2010, President Obama organised all federal loans under the direct loan program, by enacting the Health Care and Education Reconciliation Act of 2010. With this act, the Federal Direct loan has become the sole government backed loan in the United States of America. Some of the major changes that have come into being since then are as follows:
The time period to receive student loan forgiveness has been reduced from a hefty 25 years to 20 years.
Subsidies are no longer given to private lending institutions for federally backed loans.
The Current Scenario
In the year 2014, there was a legislation passed by the Obama Administration (also termed by some as the Obama Student Loan Relief Act) which aimed to cap the amount that a student loan borrower would have to pay out each month for the student loans.
For new loans starting in 2014, borrowers would qualify to make payments based on 10% of their discretionary income. There shall be an increase in the college funding as also the money issued to fund the poor and minority students.
The year 2016 saw new rules and amendments to the existing federal laws and will start to take effect from July 2017. Some of the benefits that the Obama Student Loan Forgiveness Programs offer are summarised here in:
The ability to consolidate all loans under one new loan category and the ability to choose an affordable repayment process by the borrower.
There are five different ways to repay the direct loans. The repayment plans include the standard 10 year repayment plan, Pay as you earn Repayment plan, Income based repayment plan, Income contingent repayment plan.
When a student has enrolled in the Income Contingent Plan or the Income Based Plan, or Pay as You Earn repayment plans, the loan balance would be forgiven at the end of the term even if there is a remaining balance. The term period would be between 20 to 25 years depending on the repayment plan chosen, and when the loans were originally taken.
The proposal is likely to be finalised by November 2016, under which students can ask for debt forgivenessif they can show any one of the following:
That the school had a court judgement against it.
Breach of contract with the student by the school.
Substantial misrepresentation of the offerings made by the schools and the job prospects or even the student loanthat a student would take on.
Another interesting aspect here is the increase in the time limit to seek loan forgiveness from the current 2 year limit to up to six years, following the discovery of the school’s wrong doing. The catch here is the entire debt may not be forgiven.
The US Department of education will examine the claim and then determine the harm incurred by the students because of the school’s actions. This will then be translated to a percentage of the loan that will be forgiven by the federal government.
After the new rules and amendments to the student loan forgiveness program kicked in, many scams have surfaced up in various names such as “Student Loans – Obama Forgiveness”, “Obama forgiving student loans”, “Obama Loan Forgiveness” , Obama Student Loan Forgiveness” etc.
These fake programs and scams are worded in a deceitful manner, which seems akin to the original student loan directive, signed by President Obama. These programs, generally phrased as “Obama Student Loan Forgiveness” are nothing but scams that fleece the students by charging to fill out some government related paperwork. Unfortunately, students themselves do not know the basic guidelines and criteria of the original student loan forgiveness program given out by the Obama administration and fall prey to these scams.
Students are charged thousands of dollars for some phony debt relief and fake government aid. Another myth that has been doing the rounds is that all federal student loans are being forgiven, which is nothing but an exaggeration of facts.The program introduced for the federal student loan borrowers helps them reduce the monthly payments and also in the loan forgiveness as per the eligibility criteria.
The Real Student Loan Forgiveness
The real Obama student loan forgiveness programs are explained below. These include most of the Forgiveness programs mentioned herein.
The Public Service Loan forgiveness Program
The Public Service Loan Forgiveness (PSLF) Program is intended to encourage individuals to work full-time in public service jobs. To qualify for this program, one must have made 120 qualifying payments on the William D. Ford Federal Direct Loan (Direct Loan) Program loans and employed full time by certain public service employers. One must also not default on the loans where forgiveness is being requested for. The 120 required payments must be made under one or more of the following Direct Loan Program repayment plans:
Revised Pay As You Earn Repayment Plan (REPAYE Plan)
Pay As You Earn Repayment Plan (PAYE Plan)
Income-Based Repayment Plan (IBR Plan)
Income-Contingent Repayment Plan (ICR Plan)
10-year Standard Repayment Plan
Under this loan forgiveness program, the types of public service jobs that qualify a borrower are as follows:
Working for a government organization which may include a federal, state or local entity; a public child or family service agency.
Public service jobs held in a non-profit and tax-exempt organization
A private organization that provides any of the following public services, such as Military service, Public Safety, Early childhood education, Emergency services, Law enforcement, Public library services etc.
To track the eligibility, under the PSLF program, the US Department of Education has created the Employment Certification for PSLF form which helps a borrower monitor the progress towards making the 120 qualifying payments necessary for PSLF.
Student Loan Forgiveness – A Complete list of Programs & Options
Student loan forgiveness, given by the federal government under special circumstances, is a good alternative to reduce the loan debt by forgiveness. It is estimated that over one fourth of America’s population could be eligible for the various loan forgiveness programs and options. A majority of the student population, however does not know about the available programs and how best to reduce the debt. In fact, many humanitarian and public sector jobs are eligible for loan forgiveness.
The Complete List
Public Service Loan Forgiveness Program
Teacher Cancellation for Federal Perkins Loans Program
Special Teacher Forgiveness Programs by State
Special Forgiveness Programs for Doctors by State
Special Forgiveness Programs for Lawyers by State
Forgiveness With Income-Based Repayment Program
Forgiveness With Pay As You Earn Program
Total and Permanent Disability Discharge Program
All the above mentioned programs have their own eligibility criteria with respect to who are eligible, what loans are eligible and the basic requirements for the various programs. Under the Public Service Loan Forgiveness Program, currently there is no limit for the loan amount to be forgiven. It just means that the entire amount of the student loan is eligible for forgiveness.
The Teacher Loan Forgiveness Program entails highly qualified elementary and secondary school teachers to receive up to $5,000 in loan forgiveness. Teachers who teach math, science (highly qualified teachers) or work in special education are eligible up to $17,500 in student loan forgiveness. Teachers who teach at low income schools are generally eligible for this program.
Under the Special Teacher Forgiveness Programs by State, teachers working in certain areas, are given an opportunity to forgive the loans for amounts varying from $ 2500 to $24000, depending on the state.
The Special Forgiveness Programs for Doctors by State is meant for doctors and health care professionals and the amount of loan forgiven varies from state to state and the amount can go as high as $ 35000, in Washington, where it is mandatory for Healthcare professionals to provide primary care in a rural area.
The loans that are eligible for Forgiveness With Income-Based Repayment are Direct loans. Direct consolidation loans, Direct PLUS loans,Federal Stafford loans, FFEL PLUS Loans made to graduate or professional students and FFEL Consolidation Loans.
While the Total and Permanent Disability Discharge program relieves the borrower to repay the Direct Loan, the borrower must furnish information that he/she is permanently disabled, upon which the department of education will evaluate whether or not the borrower is qualified for a TPD discharge. Some of the ways to qualify for a TPD Discharge are:
Veterans can submit documentation from the U.S. Department of Veterans Affairs (VA) showing that the VA has determined the veteran as unemployable due to a service-related disability.
If currently receiving Social Security Disability Insurance PDF (SSDI) or Supplemental Security Income (SSI), then one can submit the Social Security Administration’s notice of award for the benefits that states that the next disability review will take place in five to seven years from the date of the most recent determination.
One can also submit a certification from a doctor that he/she is totally and permanently disabled and unable to engage in gainful activity due to a mental or physical impairment that can be expected to result in death or has lasted for at least 60 months, orcan be expected to last for at least 60 months.
The Obama Administration has made the student loan forgiveness programs more viable to a majority of Americans. But an important point to be remembered here is that these are all applicable only on federal student loans.
** The classification of the types of federal loans, the complete list of student loan forgiveness programs, including the public service loan forgiveness programs and the Direct Loan Program repayment plans are credited to be taken from the information displayed on the website of the US department of Education.