Why Student Loan Forgiveness Might Not be Worthwhile

Many students find they pay more to get loans forgiven than if they’d just paid them off.

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(SALEM, Ore.) - “Wait, all I have to do is work in an area deemed to serve the public good and a significant portion of my student loans will be wiped away — just like that?”

There would be no need for an article of this nature if that were it, 100 percent. Sadly though, the reality can be quite different. Things don’t always go as planned, or even as described for that matter.

Here’s why student loan forgiveness might not be worthwhile — for you.

It Can Take Decades

At five years, the Teacher Loan Forgiveness program has the shortest term of all of the above. However, it also only offers between $5,000 and $17,500 toward your debt, depending on the subject you teach.

Meanwhile, the PSLF requires 10 years of service before forgiveness is granted.

That’s a long time to work in a field that might not be on your career path just to get a loan forgiven. Many income-driven plans can run for up to 20 years or more, with interest accumulating all the while.

You Might Actually Pay More

As we mentioned above, in some cases, you’ll have to make payments anywhere from 10 to 20 years before the loan is forgiven.

If you put your loan in an income-driven repayment plan, an extraordinary amount of interest can accrue over those years. How much will all of those payments add up to in total?

Compounding interest, as these Freedom Debt Relief reviews illustrate, can make debts grow out of control. You could very possibly pay more than you would’ve if you’d just satisfied the loan at the standard rate.

You Could Encounter Opportunity Costs

Given what we’ve discussed above about how long it can take to qualify for one of these programs — and how much interest can accrue over the years — would you really profit from being enrolled in a forgiveness program, or will it cost you money?

You Might Get Taxed

The following types of forgiveness are taxable:

• An income-driven repayment plan
• Closed-school discharge
• Borrower defense to repayment
• Discharge for false certification, unauthorized payment or unpaid refund

These forgiveness programs are tax-free:

• Public Service Loan Forgiveness
• Teacher Loan Forgiveness
• NURSE Corps Loan Forgiveness
• Loan discharge due to total and permanent disability or death

These are just four of the reasons why student loan forgiveness might not be worthwhile. It’s a good idea to look into any program you’re considering with these thoughts in mind. It could be the difference between getting your debt cleared or signing up for a never-ending financial obligation.

Source: Salem-News.com Special Features Dept.