Let me guess how you ended up here. You typed, “Are there legitimate student loan forgiveness companies?” into your search bar.
Perhaps you’ve heard rumors about magical programs that make your student loans disappear, and you’re wondering if they’re too good to be true.
Although you have to watch out for student loan forgiveness scams, you can find legitimate forgiveness programs offered by the federal government. Here’s what you need to know.
Is student loan forgiveness legit?
The short answer? Yes. The long answer? It’s complicated.
Getting loan forgiveness is a lengthy process that only applies under certain circumstances. It’s also only available for federal loans; forgiveness for private student loans doesn’t exist. So if someone is promising to erase your debt with a private lender, it’s probably a student loan forgiveness scam.
If you want to seek forgiveness for your federal loans, you might have to switch to an income-driven repayment (IDR) plan. With these plans, you’ll pay a percentage of your income toward your student loans.
Although your monthly payments on an IDR plan might be lower than on the Standard Repayment Plan, the term of your loan will be longer. With a longer repayment term, you could end up paying much more in interest than if you stayed on the standard 10-year term.
Here are five legitimate programs that could help you get your loans forgiven:
1. Income-Based Repayment
- Maximum monthly payment: Generally 10% or 15% of your discretionary income
- Loans are forgiven: After 20 or 25 years of payments
- Eligible loans: Direct Subsidized and Unsubsidized Loans, Grad PLUS Loans, Direct Consolidation Loans, Federal Stafford Loans, FFEL PLUS Loans, and FFEL Consolidation Loans
2. Pay As You Earn
- Maximum monthly payment: Generally 10% of your discretionary income
- Loans are forgiven: After 20 years of payments
- Eligible loans: Direct Subsidized and Unsubsidized Loans, Grad PLUS Loans, Direct Consolidation Loans
3. Public Service Loan Forgiveness
- Maximum monthly payment: Dependent on your repayment plan
- Loans are forgiven: After 10 years of payments under an IDR plan while working in a qualifying public service job
- Eligible loans: Direct Subsidized and Unsubsidized Loans, Grad PLUS Loans, Direct Consolidation Loans
4. Total and Permanent Disability Discharge
- Loans are forgiven: Upon proof of total and permanent disability
- Eligible loans: Any loans under the Direct, FFEL, and Perkins Loan programs
5. Perkins Loan cancellation
- Loans are forgiven: Upon proof of employment in a qualifying service career
- Eligible loans: Federal Perkins Loans
You might also be eligible for loan cancellation if you die or go bankrupt, or if your school closes or made fraudulent claims. You can read more about these student loan discharge programs here.
Lastly, you’ll find other forgiveness programs for particular professions. Here are comprehensive student loan forgiveness guides for:
- Military
- Law enforcement
- Doctors, nurses, and physician assistants
- Dentists
- Professors and teachers
- Lawyers
- Pharmacists
- Veterinarians
- Accountants
- Psychologists
4 things you need to know about student loan forgiveness
Is federal student loan forgiveness legit? Yes, with some caveats.
1. Not everyone is eligible
To be eligible for IBR, PAYE, or PSLF, your payments must be lower than what they’d be under the standard 10-year repayment plan.
Say you earn $30,000 per year as a social worker but have $80,000 in debt because of your master’s degree. Tying your loan repayment to your income would keep your payments lower over a longer period. It would cost you more to repay the loan unless you qualified for loan forgiveness.
This post has several scenarios to help you determine if you’re eligible for student loan forgiveness.
2. Forgiveness takes a long time
Depending on which program you’re pursuing, your student loans might not be forgiven for decades. In that time, you’ll pay more in interest than under the standard plan.
And remember: When it comes time to finally get your loans forgiven, your remaining balance might not be all that impressive.
3. Your remaining loans might be taxed
In the eyes of the Internal Revenue Service, a forgiven student loan is taxable income unless your debt is forgiven through PSLF or teacher forgiveness programs.
So if you eventually manage to have $50,000 worth of loans forgiven, you’re going to be on the hook for paying federal (and possibly state) taxes on that amount.
4. It’s not always worth it
As noted above, you might pay significantly more in interest if you opt for forgiveness through an IBR plan. Run your numbers through our IBR calculator to see exactly how much.
Since many student loan forgiveness programs require you to work in public service, you’ll likely earn a lower salary than you would in the private sector. You’d almost certainly earn a higher income as a lawyer for a firm representing name-brand clients than you would as an attorney for the government, for example.
Watch out for these student loan forgiveness scams
Although the programs above are legit, you’ll want to be on the lookout for loan forgiveness scams.
For example, seemingly legitimate student loan forgiveness companies might charge you to fill out government forms for your student loans. But you can complete the paperwork yourself for free by using the tools on the Federal Student Aid website.
Even worse, other companies might call and pretend they can forgive your student loans for a fee. Don’t buy into this. You’ll never have to pay a fee to participate in a student loan forgiveness program. Only loan forgiveness scams will ask you for advance fees.
Remember that the federal government is the one lender that wipes away your education debt. If you’re being promised something by illegitimate student loan forgiveness companies, they’re probably promising a lot more than they can deliver.
There are student loan forgiveness scams, but there are also plenty of other student loan scams. If you’ve fallen victim to one of them, you may contact:
- Your bank or credit card company: You could seek to stop the payment to the scammer if you paid a fee upfront.
- The three major credit bureaus: You could report fraud or freeze your credit report to avoid future harm.
- The Office of the Inspector General: You could ask for advice if your student loan information was compromised.
- The Consumer Financial Protection Bureau: You could report the business and submit a complaint.
How to seek student loan forgiveness
If you’re struggling to repay your loans and think forgiveness is the right path for you, don’t just search Google for legitimate student loan forgiveness companies. Read our comprehensive guide to student loan forgiveness. See if you qualify for any existing options.
If none of the legitimate federal programs apply to your situation, consider putting your loans into deferment or forbearance. You may also refinance your loans with a private lender.
Along the way, be on the lookout for student loan forgiveness scams that are after your money, not your well-being.
Whatever you do, don’t ignore your loans. Because that’s the one way to ensure they never disappear.
Andrew Pentis contributed to this post.
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