Pros And Cons Of Student Loan Forgiveness Programs

Student loan forgiveness programs are introduced by the federal government and only apply to federal student loans. These programs are one of many benefits associated with federal student loans. These programs help you to clear your debt completely and save thousands of dollars in interest. However, it’s not that simple or straightforward.

No lender, not even the federal government, will allow you to erase all your debt without a very good reason. Every student loan debt forgiveness program comes with strict caveats. You will have to meet all of the stipulated requirements before your federal student loans can be forgiven.

In theory, student loan forgiveness sounds wonderful – meet the requirements and overnight all your debt just disappears. The truth is, it can be hugely beneficial if you do meet the requirements. But it’s not all that easy. Understanding the pros and cons of student loan forgiveness programs can help you decide if this is worth it for you.

First though, a look at the types of student loan forgiveness programs that exist.

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Types of Student Loan Forgiveness Programs

There are primarily two types of student loan forgiveness programs. One is the Teacher Loan Forgiveness program for forgiveness for teachers. The other is the Public Service Loan Forgiveness program for other careers.

The qualifying criteria for both are very different but they are both equally stringent. Meeting all the requirements is non-negotiable if you are looking to get your debt wiped away.

Teacher Loan Forgiveness: You may qualify for teacher loan forgiveness program if you take up a job as a teacher in certain specified schools. These schools are typically low-income schools. The second requirements is that you must have worked in such schools for a minimum of 5 consecutive years on a full-time basis. If you fulfill these criteria, about $17,500 of your student loan amount will be forgiven. The loans that can qualify for this program include federal Stafford loansdirect unsubsidized loans, and direct subsidized loans. As the amount forgiven is only a small fraction of the total loan amount, most graduates do not find the terms of this forgiveness program are attractive enough. They generally do not look into this program unless they are truly interested in pursuing a career as a teacher.

Public Service Loan Forgiveness: To qualify for the public student loan forgiveness program, you have to work full-time for a qualified employer. According to the terms of this program, the emphasis lies more on your employer rather than the job position itself. The employer must be a government agency or a nonprofit organization. Initially, you would have to make 120 consecutive payments over a decade to show that you have been making an effort to clear your student loan debts. After you’ve made the 120th payment, you can apply for your outstanding student loan to be forgiven.

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Pros and Cons of Student Loan Forgiveness Programs

 Some of the advantages of student loan forgiveness programs include:

 

1. They help you get rid of your student loan debt.

If you qualify for the Public Service Loan Forgiveness program, you can wipe out your outstanding federal student loans after making the 120 monthly payments. These payments must be made over a period of 10 years. Thereafter, the remaining loan amount will be forgiven. The Teacher Loan Forgiveness program wipes out your debt if you’ve worked in a low-income school for 5 consecutive years. There’s a limit on the amount that can be forgiven under this program.

2. There are several jobs that qualify for these forgiveness programs.

Both programs take into consideration the employer you work for and not the specific job you do. This is great as it opens up the kind of work that you can do. You can take up any type of job you like as long as the employer is acceptable to the program.

3. You do not pay tax on the forgiven amount.

Some student loan repayment plans come with a tax implication as the IRS considers the forgiven amount as taxable income. This is not the case with the Teacher Loan Forgiveness and Public Service Loan Forgiveness programs. Hence, you have no reason to worry. Basically, the IRS will not slap you with a huge tax bill after the loan amount is forgiven.

Cons of Student Loan Forgiveness Programs

Knowing the cons of student loan forgiveness programs is as important as knowing the pros. Understanding the cons helps you truly make an informed decision as to whether you should apply for student loan forgiveness program and also which one is best for your circumstances.

Some of the disadvantages of these forgiveness programs include:

1. The qualifying criteria are very stringent.

To get the benefits of a forgiveness program, you have to first ensure that you are employed by a qualified employer. Thereafter, till your student loan amount is forgiven, you have to adhere to a long list of requirements to ensure you remain in the program. For instance, for the Public Service Loan Forgiveness Program, you have to be up to date with the annual documentation and paperwork. If you aren’t, you get disqualified from the program.

2. Job prospects are limited.

If you want to enroll in a federal student loan forgiveness program, it limits the jobs you can take. While it is great for graduates who are interested in working in the public sector or who are passionate about teaching, these career paths may be everybody graduate’s first, second or even third choice. It can be a major compromise.

3. You will be required to make a long-term job commitment.

To qualify, you have to commit at least 5 to 10 years in the chosen field of work. This can be cumbersome if you are not interested in working in relevant jobs.

The Bottom Line

There are pros and cons of student loan forgiveness programs. They are attractive as long as you know what you are getting into. Before you make this major decision, it is important you understand each forgiveness program and its pros and cons.

If you don’t qualify for any of the forgiveness programs, everything is not lost. There are also a few income-based federal repayment programs that you can qualify for. These could result in loan forgiveness after a stipulated period of time.

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