As student loan debt grows, more and more borrowers are looking for a way to get rid of it. Enter student loan debt relief companies.
Some say they’ll give you access to “Obama student loan forgiveness” programs, while in reality they charge you to sign up for income-driven repayment plans or to consolidate your federal student loans — which you can do on your own for free.
Here’s the reality about so-called “Obama student loan forgiveness,” and how you can take advantage of legitimate programs instead.
There is no “Obama student loan forgiveness” program
Under President Barack Obama, federal legislation went into effect that made it possible for borrowers to repay their federal student loans based on their incomes. These programs, called income-driven repayment plans, also forgive your loans after 20 or 25 years of repayment. Borrowers who work in public service can have their loans forgiven in 10 years through the Public Service Loan Forgiveness program.
Generally, these initiatives are what student loan assistance companies refer to as “Obama student loan forgiveness.” The problem? You can apply for an income-driven repayment plan for free by completing an Income-Driven Repayment Plan Request form on studentloans.gov. Applying for Public Service Loan Forgiveness will be free, too, once the application becomes available around October 2017.
But student loan debt relief companies will charge you a fee — upfront, on a monthly basis or both — to submit your income-driven repayment application. They will also charge to consolidate your student loans, which makes certain loan types eligible for either income-driven repayment or Public Service Loan Forgiveness.
The federal government offers legitimate forgiveness options
There are four income-driven repayment plans that will forgive your remaining loan balance after 20 or 25 years:
Income-based repayment and Pay As You Earn require you to show a partial financial hardship in order to participate. That means your monthly student loan payments must be more than 10% or 15% of your discretionary income. But income-contingent repayment and Revised Pay As You Earn, known as REPAYE, are open to all borrowers with federal direct loans. It’s free to apply for one of these plans, and your loans will be forgiven at the end of your repayment term if part of your balance is left over.
There are also separate federal student loan forgiveness programs available based on the career you choose:
- Public Service Loan Forgiveness offers forgiveness after 10 years, or the time it takes you to make 120 payments, if you work full-time at a nonprofit or for the government.
- Teacher loan forgiveness will cancel $17,500 in direct or Stafford loans after you’ve taught for five years in a low-income public elementary or secondary school.
- Perkins loan cancellation will forgive up to 100% of your Perkins loans if you work in public service jobs for five years.
It’s free to apply for federal student loan forgiveness
Now you know you have forgiveness options beyond the pricey, misleading offers debt relief companies market to you. Even better, going the legitimate, government route means you won’t have to pay to sign up.
Go to Federal Student Aid or studentloans.gov to learn about your options, or call the Federal Student Aid Information Center at 800-433-3243. Applying on your own for forgiveness — either through your student loan servicer or directly on studentloans.gov — could save you hundreds, even thousands, of dollars that could go toward your loans instead.
More and more state attorneys general — in Illinois, Kentucky, Minnesota and Washington, for example — are conducting investigations into student debt relief companies. Many of these states provide resources to struggling borrowers, including hotlines and student loan counseling.
Educate yourself about the warning signs of student loan scams so you can avoid them. If you feel you’ve been victimized by a student debt relief company, whether it marketed “Obama student loan forgiveness” or another service, tell your story. Submit a complaint to the Consumer Financial Protection Bureau or to your state attorney general’s office.
Sharing your experience could help bring about change in the student debt relief market. In March, the CFPB shut down the Student Aid Institute for charging borrowers upfront fees and misleading them about the services it would provide.
“If we don’t hear from consumers about particular companies, we may not know they’re out there doing these things,” says Kevin Winstead, assistant attorney general at the Kentucky Attorney General’s Office, which launched its own investigations in March.
Now that you know the facts, share with friends so they don’t pay for what’s free, either. Unnecessary charges to fill out otherwise free paperwork shouldn’t add to your student loan stress.