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Do You Qualify for Student Loan Forgiveness?

When your child gears up to go to college, it may seem like a good idea to cosign for their student loans. It’s normal as a parent to feel like you should lend a hand when your freshly enrolled college student is offered financial aid through lenders. In fact, 92 percent of undergraduate private student loans had a cosigner in 2017-2018, a number that has risen significantly since 2008-2009, when it was 74 percent. Cosigning certainly has its benefits. For your child, it means that they are more likely to be approved for a private student loan. If you have a solid credit history, it also means the rate on the loan will be lower than if your child were to apply for the loan independently. This can save you and your child money throughout the lifetime of the loan. However, cosigning on a student loan can have serious consequences on your financial health, especially further down the road. Cosigning is not as simple as a glowing character reference from you for your student; it means that you are guaranteeing that you can pay the debt in the event that your child cannot. Here are some real implications to consider before cosigning on that student loan: 1. Cosigning a loan will raise your debt-to-income ratio. While this may not have an impact on your life currently, it does have long-term effects on your credit score. If you plan on opening other lines of credit in the future, the student loan will be treated as if it is your loan. This can make it much more difficult if you have plans to take out a mortgage, refinance an existing mortgage or get a loan to buy a new car. 2. If your student does not pay the loan on time, you are responsible for the full amount of the debt, including late fees or collection costs. Ideally, your child will find the perfect job right after graduation and have no issue paying their student loans back. However, that’s not always the case. In 2016, 43 percent of students with federal student loan debt weren’t making payments or were behind on their payments. No matter how well you plan to pay the loans back, you can’t always predict how your college student will follow through on repayment. You can request that the creditor notify you if your child misses a payment to ensure you have the time and warning to prepare to make any necessary payments. Make sure that you have copies of all important papers related to the loan and its terms so you have the full picture of your responsibilities as a cosigner. 3. If you unexpectedly die or declare bankruptcy, it may put your child in immediate default on the loan. Many private student loans contain a clause that allows the lender to call the loan in full in situations where a cosigner passes or declares bankruptcy. Even if every payment was made on time before, this can ruin your child’s credit and overall financial well-being. Some lenders will allow a cosigner to be released from a private student loan under certain conditions (typically after a chosen number of consecutive, on-time payments and a satisfactory credit check to ensure the borrower can pay the loan back independently). Cosigner releases are not easy to get though; in 2015, 90 percent of applications for cosigner releases on private student loans were rejected. In the event that your cosigner release is rejected, you will want to have a plan in place to protect your child’s financial health no matter what happens. While student loans can help your child achieve their dreams, they also can be very stressful to pay back, especially when loan providers don’t always offer the assistance needed. We know that it’s not easy and that’s why we’re here to help you make a plan to handle student loans. Tax Defense Network’s Student Loan Solver will offer you a full review of your student loan debt situation and help you choose the best solution to fit your needs. Call us today at 877-958-0515 or visit us at Student Loan Solver to get started with a free-to-start confidential consultation.
Wouldn't it be great if all your student loan debt would just -poof- disappear? Read about ways to have your loans forgiven or discharged.

Wouldn’t it be great if all your student loan debt would just -poof- disappear? Unfortunately, there’s no magic wand or spell that can make them go away that easily. And in this day and age, many people have massive amounts of student loan debt with no end in sight. However, there are ways to have your loans forgiven or discharged, which is as close as they’ll get to disappearing. The following types of student loan forgiveness and discharge can help you deal with seemingly unmanageable student loan debt.

Public Service Loan Forgiveness (PSLF)

The Public Service Loan Forgiveness (PSLF) Program will forgive the remaining balance on your Direct Loans under specific circumstances. In order to qualify for PSLF, you need to meet these requirements:

  • You must have made 120 qualifying monthly payments under a qualifying payment plan
  • You must work full-time for a government agency or non-profit
  • And you must be working for the government or non-profit when you request forgiveness

There is also a program called Teacher Loan Forgiveness that is offered to those in the teaching profession. Full-time teachers may qualify for forgiveness on their Direct Loans or Federal Consolidation Loan in 5 years. This forgiveness caps at $17,500. 

Income-Based Repayment Plan Forgiveness

Under income-based repayment plans, your student loans will be forgiven after 20-25 years of qualifying payments, depending on which repayment plan you select and when you initially borrowed. However, you may pay more than the original loan under a standard repayment plan. This is due to the increased interest over 20-25 years versus 10 years. 

Discharge

There are many different types of discharge, including: 

  • Disability: If you are “totally and permanently disabled,” you could be eligible for a discharge of your federal student loans. However, you will have to provide documentation that you meet the requirements.
  • False Certification: In certain circumstances, you may be eligible for a discharge of your federal student loans. These circumstances are generally if your eligibility to receive the loan was based on false certification or an unauthorized signature.
  • Closed School: You may get a discharge of your federal student loans under two different situations with a closed school. You can get a discharge if your school closes during your enrollment and therefore you’re unable to complete your program. Or you can get a discharge if your school closes within 120 days after you withdraw.
  • Death: If you die, then your federal student loans will be discharged after the required proof of death is submitted.

Each of these types of discharge has their own rules and regulations. Some types of discharge require a very high burden of proof and others have extensive delays. For example, a disability discharge has a three-year delay before officially canceling your loan. 

Tax Implications of Student Loan Forgiveness

If you do receive forgiveness on your student loans, the IRS will likely consider the forgiven debt as taxable income. This is because you received money that you no longer have to pay back. If your student loans are forgiven, expect a high tax debt

Forgiveness isn’t just given to anyone. Clearly, there are many qualifications you’d need to meet, not to mention all the hoops you’ll need to jump through.

The laws on student loan forgiveness are also always changing. Even as you read this, there are discussions happening around tightening the criteria of student loan forgiveness for students who attended fraudulent schools, discontinuing PSLF for new borrowers, and the possibility of discharging your loans due to bankruptcy. So ask your servicer or a qualified professional about these options sooner rather than later.

If you do ask for forgiveness, don’t just stop making payments on your loan! If possible, you’ll want to keep on top of your payments to ensure you don’t fall behind, especially if the answer is, “No.” And if that is their answer, you can always contact a student loan professional to discover other solutions

 

Disclaimer: The viewpoints and information expressed are that of the author(s) and do not necessarily reflect the opinions, viewpoints and official policies of any financial institution and/or government agency. All situations are unique and additional information can be obtained by contacting your loan servicer or a student loan professional.

Yep, now you can.

student loans. taxes. business.

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