The amount of student loan debt in the U.S. is a staggering problem that can’t be ignored – so prevalent, in fact, the average college student carries a debt load of more than $30,000 following graduation. Even worse, an estimated 10 percent of borrowers default within two years of earning their degrees.
Given those numbers, it’s no surprise that the amount of people enrolling in student loan relief programs that cap payments as a percent of income has increased more than 56 percent in the last year alone, according to a recent Wall Street Journal report.
Is debt relief or loan forgiveness right for you? Before signing up, it’s helpful to be aware of (and to beware) some common myths and misconceptions out there that could cost you money, or worse, send you further into debt.
Myth #1: All student loan debt relief programs cost money
That’s what the companies who charge a pretty penny would like you to believe: you’re in debt for thousands of dollars, and it’ll cost you almost as much to get them absolved.
The sad part is that many debt relief services walk a fine line between legitimate operation and outright scam; some may even inform you there’s nothing they can do for your debt, only after you’ve paid them.
Simply put, it’s money that you shouldn’t – and don’t – need to be shelling out when there are free alternatives available.
Applying for government aid through the U.S. Department of Education comes at zero cost. Start by visiting sites like studentloans.gov and studentaid.gov for information on debt relief, forgiveness, or repayment options. That’s not to say all debt relief programs costing money are bad, but it’s unwise to splurge when similar (or better) alternatives are available.
Myth #2: Declaring bankruptcy is the ultimate form of debt relief
It sounds too good to be true because it is. Unfortunately, you can’t declare bankruptcy and wipe your hands clean of student loan debt. Think about it: if the courts granted you a pass, your student loans still need to be paid off, and that would fall on the shoulders of taxpayers.
According to National Debt Relief, there are circumstances where you could claim a case of special financial hardship to a judge, but it’s unlikely they’ll approve it.
Fortunately, there’s a process called Public Service Loan Forgiveness, or PSLF, that will discharge your debt after 20 years if you work for a qualifying employer, providing you’ve been timely with your loan payments over the years.
Myth #3: Student loan debt relief stemming from fraud is only available to former Corinthian College students
Student loan fraud is not uncommon. In fact, the Department of Education recently set up a loan forgiveness program for former students of for-profit colleges such as Corinthian College, who were saddled with debt after the entire network of schools and campuses abruptly shut down. The big myth here is that only Corinthian students are eligible for debt dismissal.
The good news: any student who’s been a victim of federal loan fraud – from any school that’s broken state laws – can have their debt canceled outright, according to Gerri Detweiler of Credit.com.
“It’s called a ‘defense to repayment,’” she wrote, “and the Department of Education is working on a process to make it easier for borrowers who attended other schools to apply for this relief.”
If that’s you, don’t pass up on seeking out compensation for fraudulent debt.
Myth #4: President Obama will personally forgive your student loan debt
The Obama administration promised an era of change, but student loan debt is where it draws the line. One version of this myth states that the president will soon be signing a debt forgiveness program into legislation; another says that one already exists, called the “Obama Forgiveness Program.”
While this would be a godsend for anyone struggling with debt, the fact is that the U.S. government has enough of its own debt to contend with.
Myth #5: Student loan debt relief programs will get you out of debt faster
If you take advantage of one of the repayment plans outlined above, don’t assume that it’s the answer to getting rid of your loans quickly. While your monthly payments will be lower, your loan term will likely be much longer.
Plus, Natalie Bacon wrote for Money Under 30 that if you’re not making payments that cover at least your loan interest, you may find yourself spiraling into further debt as more interest builds on top of your principal balance.
Make sure that whatever your repayment situation is, you can afford to make your payments. Debt relief programs might not save you money in the long run, but will prevent you from defaulting if payments are too much to handle. Just be sure to do your research and choose a legitimate program that’s right for your situation.
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 3.36% APR (with Auto Pay) to 7.82% APR (with Auto Pay). Variable rate loan rates range from 2.41% APR (with Auto Pay) to 6.99% 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 April 17, 2019, 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 04/17/2019. 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 email@example.com, or call 888-601-2801 for more information on our student 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 SoFi.
3 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.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
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 2.45% effective May 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.41% – 6.99%1||Undergrad & Graduate|
|2.41% – 7.89%2||Undergrad & Graduate|
|2.43% – 6.65%3||Undergrad & Graduate|
|2.38% – 6.81%4||Undergrad & Graduate|
|2.41% – 8.19%5||Undergrad & Graduate|
|2.60% – 9.60%6||Undergrad & Graduate|