Obama Student Loan Forgiveness | Fact Or Fiction
The Alarming Truth about the Obama Student Loan Forgiveness Program
It’s been about a year since this term first made the news. The Obama Student Loan Forgiveness program would save everyone struggling to repay their student loans. Well, from what we have read and seen, it’s time again to revisit this alleged beneficial program.
Is it any wonder that many students are selling themselves to a sugar daddy to get their student debt paid. Granted, some of them could have gone the community college route for the first two years, but turning to prostitution to get an education! This is a sick society that we live in today.
Is the Obama Student Loan Forgiveness program fact or fiction? Many of you have seen advertisements, commercials, and yes, those horrible infomercials, touting the many benefits of a program that does not exist. There is no such program with that name, and furthermore it was a complete fabrication designed to take advantage of stressed out student loan borrowers who are either in arrears or struggling to find the money to make their payments.
Many student loan counselors and others take advantage of student loan borrowers, and their primary concept was to induce the borrowers to pay high fees to apply for a debt forgiveness program. Any of those alleged services could be performed by the borrowers with little effort and for free. [bctt tweet=”What’s your opinion on the Obama Student Loan Forgiveness program?” username=”HBSMoneyTips”]
One of the most prolific versions of the Obama Student Loan Forgiveness program myth claimed that after paying on the student debt for twenty (20) years, up to $45,000.00 of the student loan debt would be cancelled. However, it required that at least 10% of the loan balance had been repaid.
Another version of this myth required that the student loan borrower had to be already graduated from college. Another version blatantly stated that even private student loans were eligible for Student Loan Forgiveness. WOW, what a great program. Almost sounds too good to be true…O wait it is.
The Obama Student Loan Forgiveness program was formulated by using various requirements and conditions of the three (3) current loan forgiveness programs as well as certain budget proposals. The current programs are:
- Under the Income Based Repayment (IBR) and also the Income Contingent (ICR) programs, any balance remaining on the student loan after the borrower has made 300 payments (25 years) would be forgiven. The ICR version is only available to those student loan borrowers who are in the direct loan programs. Under present law, this debt forgiveness is a taxable event to the borrower. Those using the IBR program can use it for direct loans and also FFELP debt.
- The other program is the Pay-As-You-Earn (PAYE). It stipulates that all debt remaining after 240 payments (20 years) shall be forgiven. The amounts that are forgiven are also taxable.
Under the PAYE forgiveness program, a few more conditions apply. Firstly, it’s available only for the direct loan program, and there can be no loans funded prior to October 1, 2007. In addition, there must be at least one loan funded after October 1, 2011.
The President plans to expand the PAYE program so that it applies to all federal student loans and not just the recently funded loans. He’s still trying to come up with a way to pay for this expensive change. He will have to find or create savings somewhere in the student loan program to cover this expense because only Congress has the authority to appropriate funds.
A further inducement is available to any student loan borrower that can use one of the three loan forgiveness plans. This provides that if the student loan borrower has made 120 payments (10 years), and he/she is working full time in one of the qualifying types of public service jobs, the remaining debt balance is forgiven through the Public Service Loan Forgiveness Program.
The only types of student loans that qualify for this must be in the direct loan program. In addition the loan payments must have been made after October 1, 2007, and the forgiveness is not retro-active.
These PSLFP forgiveness amounts are tax free.
No matter how hard you may try, none of these repayment options are called Obama Student Loan Forgiveness Program. It was nothing more than a scam devised to take advantage of those who are disadvantaged.