If you’ve been searching high and low for debt forgiveness options, then you’ve likely encountered private companies peddling debt forgiveness scams in exchange for high fees.
Thankfully, there are legitimate debt forgiveness programs out there for student loans and education costs, as well as for credit card and tax-related debt. Here’s how you can find them.
1. Federal student loan debt forgiveness
There are four ways to seek partial or full forgiveness on your federal student loans, including:
- Income-driven repayment: Depending on your repayment plan, if you’ve made payments for 20 or 25 years, you could qualify for forgiveness on your remaining balance.
- Perkins Loan cancellation: Depending on your profession or situation, you could apply to have your Perkins Loan debt forgiven over a few years or all at once.
- Public Service Loan Forgiveness: If you’ve made payments for 10 years while working for a qualifying employer in the public or nonprofit sectors, you could have your remaining balance wiped away.
- Total and permanent disability discharge: No matter your stage of repayment, you could have your education debt erased if you’re faced with a total and permanent disability.
There are other extreme cases where you can get your federal student loans discharged, such as in death or bankruptcy. Plus, there are federal loan forgiveness and repayment assistance programs for various professions, such as teachers, nurses, doctors, and lawyers.
Remember that any forgiven federal student loan amounts could be treated as taxable income by the IRS. Make sure to double-check current IRS rules and prepare for a large tax bill, if necessary.
Unfortunately, if you’re looking to have your private student loans forgiven, you’re out of luck. Still, there are alternatives to forgiveness that could save you money, such as refinancing your student loans or seeking out companies that pay off student loans.
2. Credit card debt forgiveness
If you’ve searched for credit card debt forgiveness programs, then you’ve probably run into debt settlement companies.
These for-profit businesses negotiate with your credit card issuer on your behalf so that you pay less than what you owe. If it works out, the issuer agrees to forgive the difference in exchange for a lump-sum payment.
Keep in mind that any amount of credit card debt that’s forgiven could come back to bite you on your income tax returns.
To avoid debt forgiveness scams, the Federal Trade Commission recommends that you avoid companies that promise to erase your debt and collect fees before they do. Vet companies using your state’s consumer protection agency.
You’ll also want to be wary of a debt settlement company advising you to cut off contact with your credit card issuer. Not making payments while the debt settlement company negotiates will harm your credit score.
Instead, open up the lines of communication with your card company. Success is rare, but nothing bars you from negotiating a settlement or altered repayment plan yourself.
You also might have heard that it’s possible to achieve credit card debt forgiveness via bankruptcy. Although it’s possible to have debt forgiven in some bankruptcy cases, you’re required to explore your options with a credit counselor before taking such a drastic step.
A credit counselor won’t grant you debt forgiveness either, but they have the training to help you manage and pay down your debt. If a settlement is the way to go, they can steer you in the right direction. If you’re not sure where to find the right counselor, the Department of Justice maintains a list of approved credit counseling agencies.
3. Tax debt forgiveness
The IRS’ offer in compromise (OIC) isn’t exactly debt forgiveness, but it’s the next best option when it comes to dealing with your tax debt.
A part of the federal agency’s Fresh Start program, OIC allows taxpayers to offer to pay less than what they owe. The IRS only accepts a taxpayer’s offer if it “represents the most the agency can expect to collect within a reasonable period of time,” according to the government website.
The IRS won’t accept your offer to pay off half of your taxes, for example, if you have the finances to pay the full amount in a lump sum or via an installment plan.
To assess your finances, the IRS will look at your income and expenses as well as the amount of equity you own in your assets, such as your home or car.
Unless your finances are in dire straits, you’re unlikely to be approved. In fact, the IRS accepted about 40% of the 62,000 OICs it received in 2017, according to the 2017 IRS Data Book.
Check out the IRS pre-qualifier tool and IRS OIC booklet to gauge your eligibility. You wouldn’t qualify, for example, if you’re in the midst of a bankruptcy proceeding. It also wouldn’t make sense to apply if it’s been nearly 10 years since the taxes were first assessed, as the agency can’t attempt to collect them a decade later.
If your OIC is rejected, you could use the IRS self-help tool to understand why.
Either way, you might be better off entering an installment agreement with the IRS. If you owe up to $50,000, you could set up monthly payments for up to six years. It’s not debt forgiveness, but it’ll give you a path toward being tax debt-free.
Whatever your debt situation, there are legitimate solutions that can help ease the burden of your dues — even if it’s not complete forgiveness. Take the time to review your options and come up with a plan that’s best for you.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.97%1||Undergrad & Graduate|
|2.56% – 7.30%3||Undergrad & Graduate|
|2.68% – 8.96%4||Undergrad & Graduate|
|3.23% – 6.65%2||Undergrad & Graduate|
|2.61% – 7.35%5||Undergrad & Graduate|
|3.00% – 9.74%6||Undergrad & Graduate|