Student Loan Forgiveness: Too Good to Be True?

Who wouldn’t want to have their student loan debt vanish—evaporate into oblivion? If you are among the millions of Americans with student loan debt, this may be the kind of thing you dream of at night. Is it possible to make this dream a reality with student loan forgiveness programs?

The federal government offers distinct student loan forgiveness programs:

1) Public Service Loan Forgiveness Program – Forgives remaining student loan debt for graduates in public service careers after they have made 10 years of payments on qualified federal student loans.

  • William D. Ford Federal Direct Loans and Direct Consolidation Loans only
  • Must use Income-Based Repayment Plan (IBR), Pay As You Earn Repayment Plan (PAYE), Income-Contingent Repayment Plan (ICR), or 10-year Standard Plan to repay loan
  • Must make 120 qualified payments (10 years); do not have to be consecutive, but payments must have been made after the start of the program in October 2007
  • Must have been working full time (30 hrs/wk) in public service while 120 payments were made
  • No lump sum or advanced payments permitted
  • Forgiven debt is tax-free
  • Apply after making your 120th qualified payment and include proof of public service employment

While the possibility of having your loans forgiven may not make up for the lower pay you are likely to earn in public or non-profit career, these programs are fantastic opportunities for those graduates already planning on careers in the public service. There are also many extensive profession-based public service student loan forgiveness programs for doctors, dentists, lawyers, MBA graduates,nurses, teachers, and many other professions to help forgive your student loans.

2) Income-Based Repayment Plan (IBR) and Pay As You Earn Repayment Plan (PAYE) – Two loan repayment plans that allow any remaining debt to be forgiven after 20-25 years.

  • Direct Subsidized and Unsubsidized Loans, Direct PLUS loans made to students, and Direct Consolidation Loans are eligible
  • Must demonstrate partial financial hardship
  • Repayments capped at 10-15% of your discretionary income for 20-25 years (depending on the plan)
  • Forgiven debt is taxable as income
  • See complete list of pros and cons of income based repayment plans

So, does loan forgiveness sound too good to be true? These student loan forgiveness programs are not suited for everyone. However, the specific groups of individuals that these programs target could benefit greatly. Though not career-specific, loan forgiveness under the IBR/PAYE plans still only benefit a limited group of individuals: those with low-income and a high loan balance that will persist for at least 20 years. The vast majority of graduates will have their student loan debt paid off by the end of the 10-25 year terms of any of the aforementioned repayment plans. However, these programs do not require a full commitment and many choose to use take part until they find a higher paying job to save on their monthly payment in the short term.

As it turns out, these student loan forgiveness programs may not allow the majority of individuals’ debt to disappear as in their dreams. Fortunately, there are still other ways for graduates to reduce their student loan debt. Refinancing may be a viable option to help you reduce your debt and pay off it faster. Though your loans might not disappear overnight, you may be able secure a better rate by refinancing.

Original Article on Huffington Post

Sallie Mae, Navient To Pay $139 Million Settling Probes Into Cheating Troops On Student Loans

WASHINGTON — Sallie Mae and its former loan servicing unit agreed to pay a combined $139 million to resolve federal allegations that the companies cheated soldiers and charged other borrowers unfair fees on student loans.

The Department of Justice and the Federal Deposit Insurance Corp. accused Sallie Mae and its loan unit, now called Navient, of intentionally violating the Servicemembers Civil Relief Act by overcharging active-duty troops beginning in 2005, a period in which service members were fighting wars in Iraq and Afghanistan. The FDIC said Sallie Mae and Navient processed borrowers’ monthly student loan payments in a way designed to maximize late fees.

Despite the settlement and the evidence amassed by federal investigators, the Education Department hasn’t determined whether it will take any action on Navient’s loan servicing contract with the federal government. Education Secretary Arne Duncan said he instructed department officials to immediately conduct a review to determine “what appropriate actions, if any,” should be taken against the company.

The service members law requires loan companies to cap interest rates at 6 percent upon request for borrowers entering active duty. The Justice Department said an audit revealed that just 7 percent of troops on active duty who had student loans with interest rates above 6 percent, and whose loans had a special military identification code in the companies’ computer systems, had their rates capped under the law.

The other 93 percent, according to federal prosecutors, paid much more than they should have. Some had federal student loans the Education Department was paying Sallie Mae to service. Nearly half of them paid an additional $166. Close to a quarter paid an extra $500. The Justice Department said a majority of troops gave Sallie Mae and Navient paperwork that made clear they were eligible for the service member law’s protections.

Federal authorities said Sallie Mae and Navient broke the law in three ways: The companies failed to honor troops’ requests after receiving them, did not follow up with troops whose documents may have been deficient, and failed to inform troops of the 6 percent cap when they requested other benefits under the law.

“Defendants’ conduct was intentional, willful, and taken in disregard for the rights of servicemembers,” the Justice Department said.

The companies agreed to create a $60 million fund that will issue refunds to 60,000 aggrieved service members, and to pay a $55,000 civil penalty. The companies also agreed to refund borrowers who were unfairly charged late fees $72 million, and pay the FDIC a $6.6 million civil penalty. Sallie Mae and Navient neither admitted nor denied wrongdoing.

“We offer our sincere apologies to the servicemen and servicewomen who were affected by our processing errors and thus did not receive the full benefits they deserve,” said John Remondi, Navient chief executive. Sallie Mae said, “We regret any inconvenience or hardship that our customers may have experienced.”

Navient placed some of the blame for its actions on the federal government. According to the company, federal authorities have effectively changed how they enforce the service member law and are now punishing Navient for failing to comply with what Navient describes as new standards.

Industry executives have previously pointed to correspondence between them and the Education Department, which lends some credence to the industry’s position when it comes to federal student loans.

For example, the Education Department previously told Washington trade groups representing student loan companies that service members had to specifically request that their loans be capped at 6 percent. The companies couldn’t simply reduce service members’ interest rates if they didn’t specifically request it.

Reducing interest rates would impact the Education Department’s bottom line. The department is forecast to generate $127 billion in profit over the next decade from lending to college students and their families, according to the Congressional Budget Office.

Education Department officials did not respond to multiple requests for comment.

The settlement, which still must be approved by a federal judge, is the first case to be brought under the service member law alleging violations on student loans, according to the Justice Department.

While the settlement resolves inquiries from the Justice Department and FDIC, pending probes of Sallie Mae and Navient by the Consumer Financial Protection Bureau were not included. The cost to settle the consumer bureau’s investigations are certain to drive up the companies’ combined tally to achieve peace with regulators in Washington, who have grown increasingly skeptical of the companies’ operations.

“Sallie Mae gave servicemembers the runaround and denied them the interest-rate reduction required by law. This behavior is unacceptable,” said Holly Petraeus, who oversees the CFPB’s efforts to protect service members. “And it’s particularly troubling from a company that benefits so generously from federal contracts.”

The service member settlement also opens a new front for Navient, which must now convince the Education Department not to cancel its lucrative government contract.

The Justice Department said the violations occurred on federal student loans — specifically on those loans the Department of Education pays the companies to service. Sallie Mae, which recently split itself into two, with Navient now handling the Education Department contract, has collected $256 million in fees off the Education Department contract over the the past three years.

According to first quarter figures, Navient this year is set to reap more than $120 million in revenue off the contract. The company handled 5.8 million accounts for the Education Department as of March 31.

The contract forbids Navient, and its predecessor, Sallie Mae, from breaking the law, and Education Department officials have said a breach of the contract may be grounds for termination. The Huffington Post previously reported that despite federal investigators having evidence as late as August that Sallie Mae violated the service member law on federal student loans, the Education Department told the company in late October that it intended to renew its five-year contract.

“There is no place in the federal student loan program for companies that would deceive or deprive borrowers of guaranteed protections or benefits,” said Rep. George Miller (D-Calif.), the top Democrat on the House Education Committee.

Duncan, when asked during a news conference Tuesday whether the department would cancel the company’s contract, said, “There’s no presumption of guilt or innocence. We’ll do a thorough review and we’ll go over the facts that follow, but every option is on the table.”

The federal government’s investigation into Sallie Mae took well over a year. Attorney General Eric Holder said that the companies engaged in a “nationwide practice of failing to provide service members with the 6 percent interest rate to which they were entitled under law.”

In August, Chris Greene, Education Department spokesman, said that Sallie Mae told the department that federal student loan borrowers were not affected by what was then publicly viewed as a probe targeting the company’s handling only of private student loans.

“The Education Department has done nothing to regulate the company when evidence that Sallie Mae mishandled its loans continues to mount,” said Chris Hicks, an organizer who leads the Debt-Free Future campaign for Jobs With Justice, a Washington-based nonprofit that is among organizations that have called on Duncan to suspend the department’s contract with Sallie Mae.

“They have turned a blind eye to their servicers’ practices at the expense of borrowers, and this is already beginning to have a ripple effect on our entire economy,” Hicks said. “Inaction simply isn’t an option.”

Sen. Tom Harkin (D-Iowa), who chairs the Senate education committee, said student loan practices uncovered by federal investigators strengthened his resolve to put in place strong servicing rules. “While some of these bad actors might think that they are too big to fail, I am committed to ensuring that student loan borrowers are no longer too small to ignore,” he said.

Original article on Huffington Post

ENSURING THAT STUDENT LOANS ARE AFFORDABLE

“Let’s tell another one million students that when they graduate, they will be required to pay only 10 percent of their income on student loans, and all of their debt will be forgiven after 20 years –- and forgiven after 10 years if they choose a career in public service, because in the United States of America, no one should go broke because they chose to go to college.” – President Barack Obama, January 27, 2010

A year ago, President Obama set a national goal: by 2020, America will once again have the highest proportion of college graduates in the world. But because of the high costs of college, about two-thirds of graduates take out loans with an average student debt of over $23,000. This debt is particularly burdensome for graduates who choose to enter lower-paying public service careers, suffer setbacks such as unemployment or serious illness, or fail to complete their degree.

To ensure that Americans can afford their student loan payments, the Health Care and Education Reconciliation Act gives student borrowers new choices in how they repay their loans. The initiative was developed by the Middle Class Task Force chaired by Vice President Biden, and it will expand the income-based repayment plan for federal student loans that was put in place last summer. More than 1.2 million borrowers are projected to qualify and take part in the expanded IBR program.

Under this new law, students enrolling in 2014 or later can choose to:

  • Limit Payments to 10 Percent of Income: Borrowers choosing the income-based repayment plan will pay no more than 10 percent of their income above a basic living allowance, reduced from 15 percent under current law. The basic living allowance varies with family size and is set at 150 percent of the poverty line, currently equaling about $16,500 for a single individual and $33,000 for a family of four.
    • More than 1 million borrowers would be eligible to reduce their monthly payments.
    • The payment will be reduced by more than $110 per month for a single borrower who earns $30,000 a year and owes $20,000 in college loans, based on 2009 figures.
  • Forgive Any Remaining Debt after 20 Years, or after 10 Years for Those in Public Service: Borrowers who take responsibility for their loans and make their monthly payments will see their remaining balance forgiven after 20 years of payments, reduced from 25 years in current law.
    • Public service workers – such as teachers, nurses, and those in military service – will see any remaining debt forgiven after 10 years.
  • Fully Funded by Student Loan Reforms: These new initiatives are funded by ending the current subsidies given to financial institutions that make guaranteed federal student loans. Starting July 1, all new loans will be direct loans delivered and collected by private companies under performance-based contracts with the Department of Education. According to the non-partisan Congressional Budget Office, ending these wasteful subsidies will free up nearly $68 billion for college affordability and deficit reduction over the next 11 years.

These proposals are part of the Obama-Biden Administration’s ambitious agenda to make higher education more affordable and to help more Americans earn college degrees. This agenda includes:

  • More than doubling funding for Pell scholarships between 2008 and 2011.
  • Tripling the largest college tax credit – the American Opportunity Tax Credit.
  • Increasing investments in America’s community colleges, Historically Black Colleges and Universities and other Minority Serving Institutions.
  • Simplifying the federal student aid application (FAFSA) making it easier to apply for college financial aid.

Original article from The White House

OBAMA REVEALS HE AND MICHELLE ONLY PAID OFF THEIR STUDENT LOANS EIGHT YEARS AGO

President Barack Obama made a startling revelation about his finances while  trying to connect with younger voters on the campaign trail by saying that he and Michelle had only paid off their college loans eight years ago.

While talking about the rising cost of college education, Mr Obama said that it took he and the first lady over a decade to pay off their student loans.

‘Check this out, all right?  I’m the president of the United States.  We only finished paying off our student loans about eight years ago,’ he said while addressing college students at the University of North Carolina at Chapel Hill on Tuesday.

‘That wasn’t that long ago.’

It really wasn’t: that would mean that the couple paid off their loans in the same year that he ran for and won the Senatorial race in 2004.

By that point, he had been working as a state senator for seven years and Mrs Obama was working as an executive at the University of Chicago Hospitals.

For the 2004 fiscal year, the couple reported $204,647 in taxable income which came from his state senate salary, her corporate salary, the royalties of his first book, Dreams from My Father and their earnings from respective boards.

By the same calculation, Mr and Mrs Obama were 42 and 40 years old respectively when their loans were fully paid off.

That said, they did have two serious educations to pay for: Mr Obama attended Occidental College before transferring to Columbia University to finish his undergraduate degree. Though the tuition fees have obviously changed since the late 1980s, Columbia was ranked as the most expensive college in 2012.

Mrs Obama graduated from Princeton University, before immediately heading to Harvard Law School. Her husband followed three years after her- just missing her on campus.

‘Michelle and I, we’ve been in your shoes,’ he said while speaking to thousands of students on Tuesday.

He drove the point home, comparing their financial situation to that of his likely Republican opponent Mitt Romney who is known for his vast personal wealth which is somewhere around $190million to $250million.

‘We didn’t come from wealthy families. When we graduated from college and law school, we had a mountain of debt.  When we married, we got poorer together,’ Mr Obama continued.

The topic of college loans is likely to come up frequently on the campaign as the President tries to re-energize the young base of voters who played a significant role into putting him in office in 2008.

He is hoping to stop the interest rate on student loans from doubling on July 1.

Though recent polls have him well ahead of the former Massachusetts governor in terms of favorability among young people, the concern is whether or not they will turn up to the polls.

A NBC/Wall Street Journal poll showed that youth interest in the election dropped 18 per cent from the 2008 election, from 63 per cent when he first ran to 45 per cent now.

He is also due to appear in a taped segment for Jimmy Fallon’s late night talk show tonight, joking around with the show’s signature ‘Slow Jam the News’ segment.

Original article from the Daily Mail