Some college students across the nation have recently been applying for federal student loan forgiveness to help pay for their college loans.
According to CBS News, “More than 7,500 people have asked the federal government to forgive a total of $164 million in student loans…” Many of these students are forming arguments around the recent trend of "for-profit" colleges being found committing fraud because of their risky advertising guarantees.Infomercials and marketing materials have been found to claim future careers and earnings after graduation. Students are still paying the cost for widespread fraud found at Corinthian Colleges. The event brought attention to the federal program and the number of students submitting claims for loan forgiveness has risen.
Corinthian liquidated after declaring bankruptcy last year. A majority of the students from the colleges, mainly Everest Institute and Wyotech and Heald College, sought loan forgiveness or borrower defense to repayment from the Federal Student Aid (FSA), an office of the U.S. Department of Education.
In the U.S. Higher Education Act of 1965, there is a clause that allows students who were defrauded by their colleges to request loan forgiveness. This act also authorized most federal student financial aid programs. This included the Educational Opportunity Grant Program and the Guaranteed Student Loan Program.
“I don’t know if it’s the government’s job to compensate (students for the loans)…(loan forgiveness) is rare and underutilized,” said Melissa Shepherd, the director of Financial financial Aid aid at Longwood University.
What Is Federal Student Loan Forgiveness
Under the direction of President Barack Obama, the Obama Student Loan Forgiveness program has allowed that “the federal government will no longer give subsidies to private lending institutions for federally backed loans…borrowers of new loans starting in 2014 will qualify to make payments based on 10% of their discretionary income. (This) money will be used to fund poor and minority students and increase college funding,” according to Student Debt Relief.
The Student Loan Forgiveness Program assists those working in public service jobs, such as nonprofits, manage their debt loan through forgiveness after 120 payments (ten years). Students that qualify for one of these federal student loan forgiveness programs can possibly have their monthly payment reduced to $0/mo. To find out if you qualify for federal student loan forgiveness, contact us.
“Student loans are a hot-button issue,” said Shepherd. “Even though over-borrowing is definitely bad, borrowing is not necessarily bad.”
If a student or parent is struggling to pay off the debt from student loans, Shepherd suggests, “Do not avoid the problem, (student loans are a) problem that doesn’t go away.”
Federal Loans Are Packaged in Students' Financial Aid Packages
There are two types of federal loans that are packaged with student financial aid at Longwood: student loans and parent loans.
Fifty-four percent of Longwood students receive federal loans. For undergraduate borrowers who complete their education, the typical total debt they face is $25,327 with a typical monthly loan payment of $281 a month, according to the FSA.
“Those that graduated in the fall had an average federal student loan debt of $24,365,” stated Shepherd. "A freshman has the ability to receive $5,500 in a federal loan," which will not come close to the full amount of tuition that is typically sought out through scholarships and grants.
However, if a student is independent and does not report their parent’s information on FAFSA (Free Application for Federal Student Aid) for any given reason, then they would be eligible to receive $9,500.
What Loans Are Provided By the Government?
There are two types of loans offered by the government, subsidized and unsubsidized. Subsidized loans are need-based and result in the government paying for the interest on the loan while the student is in school. Unsubsidized refers to interest that accumulates over a period of time while a student is in school, and once a student graduates then the student is “paying interest on top of interest” to pay off the loan.
In reality, a lot of people don’t have that money that are getting loans, but if you do, it’s a smart option to pay the loan off.
Paying off your student loan can have a positive effect on your credit score. Graduates have a better chance of being accepted for their first apartment or car loan if they have built a solid credit history. Learn more about how a student loan affects your credit score.
How to Apply For a Federal Student Loan Forgiveness Program?
If you have taken out a federal student loan and want to find out if you qualify for one of the federal student loan programs, fill out the form below.