Thursday, March 9, 2017

Student Loan Forgiveness

There is a lot of confusion about student loan forgiveness, so let's try to clear things up a bit.

In 2014, 37 million Americans had student loan debt that averaged $23,200. Depending on where you live and where you go to school your student loan debt may be larger - a lot larger.

I bet most college students are aware of student loan forgiveness programs, but they probably have no idea how they work.

Over at Student Loan Hero, Eric Roseberg has outlined the basics of student loan forgiveness - and it's something to think about.

Here's some of the basics (disclaimer: this stuff changes all the time, so stay caught up with new or revised forgiveness plans):

Student forgiveness plans apply mainly to federal student loans (Perkins loans are another matter), so all those loans you took out with Wells Fargo will NEVER qualify for forgiveness. Most banks are private institutions out to make money, so avoid taking a loan with them at all costs.

Federal loans for certain kinds of degrees, mainly public service (social workers, etc.), qualify for some type of forgiveness after ten years. You have to work in the field to qualify for forgiveness.

Some teachers with federal student loans qualify for forgiveness after as little as five years depending on where you teach. For the rest, they have to wait for ten years.

Loan holders with income-driven payment plans will qualify for forgiveness after twenty to twenty-five years.

Something to keep in mind, most forgiveness programs only apply to loan holders who have maintained good standing, meaning you have made all your payments on time and are not in default.

Sounds good? Well, think about this. Yes, you can get a big chunk of your federal loans forgiven, but the government treats that like regular income, with an exception for public service and teachers who will not receive a tax bill. What does this mean? If you have $100,000 of your student loan debt forgiven, you can expect to pay taxes on $100,000 worth of income. That's right forgiven loans are treated just like regular income and are taxed at whatever rate you fall into. On $100,000 for some that could mean a tax bill of $25,000.

As Rosenberg points out student loan forgiveness is not "all rainbows and unicorns." Do you have any student loans? Do you plan on having any student loans? How can you avoid borrowing as a student?

3 comments:

  1. Currently, I do not have student loans. Financial aid has made my stay at community college extremely affordable - in fact, that is the understatement of the year. With the flexible scheduling of classes at my school I have been able to work enough to save money while completing general ed; but this all does not look so promising upon transfer to a four year institution.
    It is certain that I will end up with student loans after transfer, because I don't seem to have about 30,000 dollars lying around (especially when I will have higher living expenses from living in California's not-so-cheap college towns).
    I think that rather than avoid borrowing, because that feat seems unrealistic in the face of insane college costs, one can think about the smartest ways to borrow. For example, steering clear of those private loans that do not offer forgiveness. In addition, the working college student is a persona more students should make their own - because not only will it build your resume while you get your degree but it will also build a strength in character that novelties of free time cannot.

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  2. Student loans are one of the biggest causes of high school graduates hesitating to go to college considering the amount of debt they will be in with no for sure security that they will even land a good job that will provide more return of income. It seems like by taxing student loan forgiveness, its another way of making money off of the students but at the same time, it's at least cutting the total debt down. Our education system should be just like Germany where they provide free schooling to everyone. It's a win-win where people earn a career through studies and in turn, work for society in order to continue the life cycle.

    Personally, I don't have student loans considering the government provides me a GI Bill and pays for my education and housing. Unfortunately though, it isnt enough to finish my nursing program so I may have to turn to student loans if I am denied extension. I will only have to rely on student loans for the remainder of my last couple of months in the RN Program. The only way to avoid this is to work while I attend Nursing school but in doing so, will risk me to fail my classes due to the stress and lack of time to study and retain all the information I learn. Sadly, myself like most of society aren't born in a wealthy family that can provide us payed tuition and free housing.

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  3. First of all, I’m so surprised that 37 million American students had a student loan, and total debt reached over $100 billion. It’s unbelievable, however, I am more surprised that they have loan forgiveness program.
    I…think, it seems to be good opportunity erase your debt, but it is debt that you started with an agreement. I wonder that most of them expected they can repay all of the debts after graduation, but they couldn’t. It’s easy to imagine what happened according to the article we read in the class. However, we have some other choice, such as financial aids that received students don’t have to return, or going to cheaper college. So, I suppose some of the students applied for the student loan without consideration or getting affluent information. However, I cannot say that happened because of only their carelessness. As the article we read, needed information are not fully provided indeed. It’s also system error. And also, the forgiveness system has several flaws. It is too limited, only for federal loans, and students majoring social, public services, or being teacher. And then, the forgiveness is considered as an income is ridiculous. It’s not forgiveness. “forgiveness” wording is deceive. Personally, I cannot agree on whole this system.

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