3 Reasons Student Loan Forgiveness Isn’t a Magic Bullet for Debt

Between stagnant wages and low employment, college graduates can have a hard time climbing that socioeconomic ladder.

And with the high price tag associated with a college education these days, many borrowers are seeking out student loan forgiveness programs to bail them out of student loan debt.

What many don’t know is that these programs often come with conditions borrowers need to be aware of before signing up.

While there are several student loan forgiveness programs that can benefit borrowers, many of them don’t make much financial sense in the long-run.

Here are a few reasons why applying for student loan forgiveness programs may not be the best idea for your financial situation.

1. Uncertain career-based forgiveness

One of the most popular programs offered for federal student loan borrowers is the Public Service Loan Forgiveness Program.

It gives government and nonprofit employees the chance to apply for student loan forgiveness after ten years of steady repayment.

Before banking on this forgiveness program, though, check out our new Public Service Loan Forgiveness calculator to see if you qualify and how much you would actually save with it.

There’s also an extensive list of student loan forgiveness programs for teachers, lawyers, and doctors. That’s assuming you can stick to a certain field or job for the amount of time required.

However, keep in mind that it may not be the best student loan repayment strategy to go into a career field just for the forgiveness benefits.

2. Increased tax burden and interest

With income-based repayment plans, a certain amount is forgiven after 20 to 25 years of successful, on-time repayment.

The amount that is forgiven, however, still has to be claimed as taxable income by the borrower. This could send a borrow into a different tax bracket, leaving them to owe the government thousands of dollars out of pocket when tax returns are due.

Although income based repayment plans help borrowers to make their monthly payments more affordable, payments could be too low. Not to mention that in order to qualify, you usually have to make well below the average salary.

Essentially, if the interest rate on the loan is too high and the payment is too low, the new monthly payment offered may not be able to keep up with escalating interest on the loans.

After 25 years accruing interest, the borrower may end up paying more in interest dollars than in principle with an income-based repayment plan than if they’d initially stuck with the original loan.

Run the numbers with our income-based repayment calculator and see for yourself if one of those plans works financially for you.

3. Private student loan forgiveness

So there aren’t any formal student loan forgiveness programs for private student loans.

There are, however, a handful of options you can pursue to make your student loan payments easier to handle within your current budget.

You can talk to your private student loan lender about the following:

  • Lowering your monthly student loan payment
  • Pursuing deferment or forbearance on your student loans for a certain amount of time
  • Refinancing your student loans to get a lower interest rate

Just remember that when it comes to private lenders, it is always best to remain in communication with them.

Ultimately, private lenders want to receive your student loan payments. So they’re most likely willing to create a custom plan that works for you both.

Unclear benefits

Like any financial solution, there isn’t a one-size-fits-all approach when it comes to student loan forgiveness programs. And all eligibility and rewards attached to federal student loan forgiveness programs are subject to change at any moment.

For many, these student loan forgiveness programs may be a viable option or a chance to get ahead financially. For others, maybe not.

Be sure to do your homework on all the benefits and possible pitfalls for any refinancing or forgiveness options available for your student loan debt.

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Published in Public Service Loan Forgiveness, Student Loan Forgiveness, Teacher Student Loan Forgiveness

  • Christy Love

    Is there any way to talk with a financial counselor on which option may be best for me? Seems like everytime I ask them if they can help me decide, or if I ask them who I can talk to about the best most resourceful way to get rid of debt, they don’t want to help. Yes, FASFA/Federal Aid. They always go around the question and say its up to you. Yes, obviously, but I thought there are people you can talk to about which plan is best for your financial situation, and help you get rid of debt the best possible way.

    • Hi Christy,

      Thanks for your question. Here are some places you can get personalized help with student loans: https://studentloanhero.com/featured/student-loan-help-personalized-advice/

      Honestly, not all servicers are are able to give helpful advice, so they’re not always the best place to turn. Instead, you may want to speak with a CFP or another financial counselor who specializes in student loans.

      If there’s anything else we can do, let us know!



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