Recently a variety of sources have run stories about how “student loan forgiveness” is going to cost so much more than previously thought. They imply that student loans are being forgiven left and right. Nothing could be farther from the truth. With current laws, allowing paychecks and Social Security to be garnished without a court order, it isn’t easy to walk away from a student loan. And bankruptcy isn’t an option. Theoretically it could work rarely, but I’ve never heard of an actual case of someone getting a bankruptcy discharge of student loans since consumer protections were removed from these loans in 2005.
Some of the articles say things like “The payments are so low, they don’t cover the interest.” This is partially true. Many payment plans don’t cover the interest. But that is not because the payments are so low, it’s because the interest charges are so high! At one point my payment was set at $153 a month. As a single parent, I was dipping into savings each month to make that payment, plus pay rent and buy food. But the interest was over $300 a month! So the debt kept growing, even though I was making payments. Luckily my family was able to move in with a friend, and didn’t become homeless, which was a real possibility. But not everyone has the option to share housing.
The powers that be seem to assume that no matter how old, or hard up financially someone is, they are still able to pay on their student loans. Don’t be fooled by these articles hinting that people who have these nightmare loans are easily able to obtain loan forgiveness. It’s just not true. For example, the Public Service Loan Forgiveness program is often mentioned as a way to get out of student loan debt. But the conditions that the payments must be made under are very limited. You either have to be on an income based repayment plan while making ten years of qualifying payments, or be on the 10 year standard repayment plan. When you’re on the 10 year plan, which has high payments, your loans would be paid off in 10 years. You wouldn’t need forgiveness! And the chances of staying on one of those income based plans a full ten years are small. If your income goes up, you get married, a child leaves home, etc. you can be taken off the plan. And there is no guarantee that the Public Service Loan Forgiveness Program will still be around long enough to make ten years of payments. Here is a link and statement from the Department of Education website forgiveness page under Common Questions:
5.Can I be certain that the PSLF Program will exist by the time I have made my 120 qualifying payments?
“We cannot make any guarantees about the future availability of PSLF. The PSLF Program was created by Congress, and Congress could change or end the PSLF Program.”
So even if you manage to stay on an income based repayment plan for 10 years (Student Loan Justice estimates 85% of borrowers won’t be able to do so), there is no guarantee the plan will still be there when you have completed ten years of payments. And there is no guarantee of forgiveness, you have to apply and see what they say.
So there is not lots of “student loan forgiveness” out there. It does get forgiven after you die, assuming you don’t have a co-signer, who would still be stuck for the loan. Forgiveness upon death isn’t much comfort for those of us who need relief now, while we’re alive! And it sure isn’t right to expect taxpayers to take on these huge interest payments. My larger loan account was originally $29,000. Assuming I make the standard payments for 25 years, which I can’t afford to do, I would pay over $70,000! The writers of these articles seem to think that if I managed to get forgiveness (I’ve already paid thousands, putting my retirement well being at risk) that the taxpayers would need to pay back the huge amount of interest. That isn’t right. There needs to be real student loan forgiveness for those who can’t afford to pay.