Student loans are a common phenomenon in the US economy with millions of students depending on these loans to complete their higher studies. But Student loans are different from scholarships and grants and are supposed to be paid off. In the United States of America, there are mainly two types of student loans, namely, Federal student Loans and private student loans. Federal student loans are funded by the federal government. Interest rates on a federal loan are fixed and in some cases, tax deductible.
Federal student loans can take two forms- Direct Subsidized loans and Direct Unsubsidized loans with the former offering certain advantages over the latter. Other than government agencies; banks and finance companies also offer student loans. Interest rates on private student loans are generally variable and higher than federal student loans. Student loans are different from scholarships and grants and are supposed to be paid off. Repaying a student loan is not really an easy task, especially, if the loan amount is huge. Repayment plans can offer some effective means to repay a student loan with ease.
Forgiveness and Discharge of Student Loan
What if someone tells you that you no longer need to worry about your loan repayment and the debt itself has been eliminated? Sounds amazing, it really does. Such an option is called student loan forgiveness or discharge. A student loan forgiveness programme is designed to help students pay full or a part of their student loan and typically require the student to pursue a particular occupation or volunteering service in exchange of paying off the loan completely or in part. Discharge of a student loan means when the borrower is no longer liable to repay one’s loan.
In other words, the loan is cancelled and the debt burden is removed. In the US economy, discharge of loan is generally associated with student loan, home loans and mortgages. However, discharge of a loan does not necessarily imply bankruptcy. There can be some other reasons as well for discharge of loan. The Federal Student Aide, an office of the US Department of Education offers for forgiveness, cancellation and discharge of student loans under different circumstances to help student borrowers in genuine need.
Other than discharge for bankruptcy, an individual might be eligible for a discharge 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 in some cases, to the lender. There is another plan called The Federal Perkins Loan Cancellation that applies to individuals who perform certain types of public services or certain types of occupations such as Teacher, Member of the U.S. armed forces, Nurse or medical technician et cetera. Also, an individual with Federal Student 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.
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 by a family member or a representative to the school or the loan servicer who is responsible for handling the billing and other services on an individual’s federal student loan.
Student Loan Forgiveness scams
It is rightly said that with solution comes its side effects. With the growing importance of student loan forgiveness scams, the number of agencies offering such discharge other than the US Department of Education has grown substantially. Internet is flooded with claims like “We will get you out of debt” and “Debt relief available, Apply soon”; needless to mention, these claims are nothing more than a trap for people surrounded with debt. A borrower needs to be prudent while applying for a debt relief programme and should be aware of some basic measures to stay away from such scams.
How to recognize a student loan forgiveness scam
A borrower can look for the following features and decide if the claims that a debt relief agency is making are true or fraudulent:
- Power of Attorney: Start doubting the intentions of a debt relief agency if they ask for your Power of Attorney because this is not required in most cases of loan forgiveness or discharge. Fraudulent agencies use this Power of Attorney to submit a Fed Loan Servicing application form on behalf of the applicant and even charge heavy charges for such a simple job.
- No repayment for sometime: It is unlikely that you will not be required to make any loan repayment for sometime on your debt. If your debt relief agency offers such a plan, carefully understand the offer because it might be nothing more that forbearance or default which is nothing to be happy about.
- No contact other than a website: It has often been observed that fraudulent agencies hide behind just a website or a contact number. Giving away your debt details to a company you know only by the website is way too risky. Also, there is nothing more that these agencies can offer you than what you can offer yourself. So stay away from draining your pockets for nothing.
All that sparkles is not gold, right? Same goes for student loan forgiveness claims; all of them are not genuine. One has to very careful in distinguishing the genuine ones from the fraudulent ones. The task is not so difficult if you keep your eyes and ears open and make decisions after required deliberation. Student loan forgiveness plans can be a big relief for students with high debt, but at the same time, these scams can worsen one’s financial situation. The forgiveness plans offered by the federal government are the best option to avail, if possible. With each amendment, the federal government is widening the horizons of these programs.