Taken too many student loans lately to pay for your medical, law or management degree? Who doesn’t wish to get a graduate degree and earn a handsome living for the rest of the life! We all want to. But it isn’t that easy to pay for your books, tuition fee and other expenditures while studying. Student loans definitely are an effective means of meeting these expenses but what becomes a problem of sorts is paying off those loans.
Student loans are different from scholarships and student grants and are liabilities waiting to be repaid. This sometimes, becomes a source of discouragement for people to avail student loans and continue with their studies.
That’s when student loan forgiveness programs come to our rescue and remove the limitations of a student loan. A student loan forgiveness programme is designed to help students pay full or a part of their student loan. This sounds great but off course requires something in return. Student loan forgiveness programmes typically require the student to pursue a particular occupation or volunteering service in exchange of paying off the loan completely or in part.
In the US, student loan forgiveness programs are also aimed at directing individuals towards sectors of national importance where there is lack of qualified personnel. The US Department of Education offers forgiveness on federal student loans and once forgiven, the student is not liable to pay his remaining loan balance.
There are two types of student loan forgiveness programmes; upfront forgiveness that eliminates a part of student debt with each passing year of service and back-end forgiveness that cancels whole of the student loan after a certain number of years of service. Back-end forgiveness programs come with all-or-nothing condition and therefore, might be risky for individuals who are not sure whether they would be able to complete their committed tenure of service or not.
Forms of student loan forgiveness program
Federal student Aid, An office of the US Department of Education provides for forgiveness, discharge and cancellation of federal student loan under various forms and plans to help students in genuine need to come out of their student loans. It offers in all eight programs for student loan forgiveness. These are:
- Total and Permanent Disability Discharge: An individual with William D. Ford Federal Direct Loan programme loan, Federal Family Education Loan programme loan or Federal Perkins Loan might qualify for Total and permanent disability discharge programme if they are incapable of arranging in any gainful activity because of physical or mental impairment that has lasted or can be expected to last for 60 consecutive or is expected to end up in death.
- Public Service Loan Forgiveness Programme : The Public Service Loan Forgiveness Programme offered by The US Department of Education is intended to encourage individuals to join and continue full-time work in public service sector. Employment with a federal, state or local government agency, entity or organisation or a not-for-profit organisation that has been designated as tax exempt by the internal revenue service (IRS) under section 501(c)(3) of the Internal Revenue Code (IRC) qualify for the Public service loan forgiveness programme
- Teacher Loan Forgiveness Programme : The Teacher Loan Forgiveness Programme offered by The US Department of Education is intended to encourage individuals to enter into teaching profession. An individual is required to teach full-time for five complete and consecutive years in certain elementary and secondary school and educational service agencies that serve low-income groups in order to qualify for Teacher Loan Forgiveness Programme.
- Death Discharge: Federal student loans are also discharged if the borrower dies. In case of parent PLUS loan, the loan may be discharged if the student himself dies or the student on whose behalf the loan was taken, dies. The loan is discharged on providing a copy of the death certificate to the school or the loan servicer.
- Perkins Loan Cancellation and Discharge: The Federal Perkins Loan Cancellation applies to individuals who perform certain types of public services or certain types of occupations such as Volunteer in the Peace Corps or ACTION program (including VISTA), Teacher, Member of the U.S. armed forces (serving in area of hostilities), Nurse or medical technician, Law enforcement or corrections officer, Head Start worker, Child or family services worker and Professional provider of early intervention services.
- Discharge in bankruptcy: Federal Student Loans can be discharged if one succeeds to prove in the bankruptcy court that paying off the loan would mean undue hardships for the individual. Undue hardship is measured in three aspects, i.e.,
- Unpaid refund discharge: An individual might be eligible for a discharge of Direct Loan or Federal Family Education Loan programme loan if he/she withdrew from school but the school did not pay a refund that it owed to the U.S. Department of Education or to the lender.
Obama student loan forgiveness program
Apparently, such loan forgiveness programmes aim to offer borrowers, with financial difficulties, various reasonable loan repayment alternatives. With the growing importance of education and competition in the world economy, student loans are gaining dominance in the US society with about $1.2 trillion student debt in the country according to Consumer Financial Protection Bureau.
In response to this ever-increasing significance of student loans, the Obama-Biden Administration has shouldered some major expansion of student loan forgiveness programs to include more graduate and undergraduate students in the ambit of the same. About two-thirds of graduates in the US take out student loans with an average of $23,000 debt per student.
Keeping in mind the high cost of education and the national goal of having the highest proportion of graduates in the United States, the Middle class Task Force chaired by Vice-President Biden has proposed to expand the forgiveness program for federal student loans to include more than 1.2 million student borrowers and make loan repayment easier specially for those who choose to join low-paying public service careers.
Eligibility for Obama student loan forgiveness program
There are some tough eligibility requirements to qualify from President Brack Obama’s forgiveness plan. Students who have taken out their loans after October 1, 2007 and meet salary-to-debt ratio conditions as determined by IBR calculator qualify for this forgiveness program. Also, the loans must not be in default or already in repayment to be eligible for this program. Private student loans are completely left out from the range of Obama student loan forgiveness program.
Benefits of Obama Student Loan Forgiveness Program
The Healthcare and Education Reconciliation Act will bring about two major benefits for the student borrowers. Firstly, Income-based Repayment (IBR) plan will limit the loan repayment to 10 percent of the income, i.e., borrowers using this plan for repayment will have to pay not more than 10 percent of their income above basic living allowance. This plan would help more than 1 million people to lessen their monthly payment. Secondly, borrowers who have repaid their debt for 20 years can have the remaining debt forgiven.
The repayment period reduces to 10 years if the choice of career is public sector services such as military services, nurses and teachers. These loan forgiveness programmes are financed by the proposed student loan reforms wherein, current subsidies to financial institutions are ending and new loans will be direct loans provided and managed by private companies bound in performance based contracts with the US Department of Education.
Criticism of Obama Student Loan Forgiveness Program
The downside of Obama student loan forgiveness program is that only students with a federal student loan are eligible for this program. This forgiveness plan does not include private loans and parent PLUS plans and hence, some financial aide experts believe that even though this expansion includes 5 million more borrowers, some of the most burdened students might receive very little relief, if at all.
According to Deanne Loonin, Director of National Consumer Law Center’s Student Loan Borrower Assistance Project, there would be many borrowers who would be struggling but would not benefit from Obama’s loan forgiveness program. It is also been said that the federal government already provides subsidy to college education via various program and this forgiveness plan would be an added burden on federal subsidy, raising it to an all new level.
In the mid of such criticism for the extension of student loan forgiveness program, the white house maintains that the aim behind such program is to encourage higher education in the country and to help deserving students focus on their degrees more than on the debts they incur in earning one.
Obama Loan Forgiveness Program seeks to alleviate debt burden among the student class of the economy. However, one problem that remains unaddressed is the high expenditure incurred in achieving a college degree and there are no focussed measures to solve that issue in support of the forgiveness programs. Student debt in the US economy is alarmingly high and with only forgiveness programs; the problem is untouched at the root of it. This argument does not undermine the importance of student loan forgiveness programs but definitely questions on how such debts can be handled through, perhaps, structural reforms.