Are student loan forgiveness programs actually real? Or are they all just scams? If you’re asking yourself this, just know that these are totally fair questions. First, the good news: There are several legitimate programs that student loan borrowers can utilize to have their student loans forgiven.
Unfortunately, there are also student loan forgiveness program scams. With all of the confusion surrounding loan forgiveness, it creates a vulnerable space for scammers to thrive. So, while there are bona fide student loan forgiveness programs, there are also real student loan forgiveness program scams.
Student loan forgiveness scams come in a couple of varieties. Most commonly, companies will promise something that cannot be done, or charge an upfront fee for something that can be done online for free.
The real trick for borrowers will be distinguishing between a company that is providing student loan counseling in a fair and legitimate way from a company that is trying to take advantage of unsuspecting students. It helps to begin with an understanding of the real options for student loan forgiveness. Use that as your baseline as you navigate potential scams.
Below, we’ll discuss actual student loan forgiveness programs, how to spot student loan forgiveness scams so that you can avoid them, and what you can do to have your student loans forgiven.
Student Loan Forgiveness Programs
Your first line of defense in avoiding scammers is having a thorough understanding of the different student loan forgiveness programs available to student loan borrowers.
All of the programs listed below are offered through the federal government. Here’s the most important thing to understand: It is always free to submit paperwork and apply to these programs .
Public Service Loan Forgiveness (PSLF):
Government employees and workers for some non-profit organizations may qualify to have their student loans forgiven after 10 years of service and on-time payments. To see if you qualify, fill out the Employee Certification form on the Federal Student Aid website.
You must be using an income-driven repayment plan to qualify. (If you’re on the standard repayment plan, you’ll pay off your loans in 10 years.)
Eligible loan types: Direct Loans, Grad PLUS Loans, Direct Consolidation Loans
Borrowers on one of the multiple income-driven repayment options (such as IBR and PAYE) but who do not work in public service may qualify to have their loans forgiven after 20 or 25 years of income-contingent payments. However, you may have to pay income tax on the forgiven amount.
Eligible loan types: Depends on the program
Total and Permanent Disability Discharge
Borrowers who become totally and permanently disabled may be able to have their loans forgiven. They must show proof that their disability precludes them from earning a meaningful wage.
Eligible loan types: Direct Loans, Perkins Loans, FFEL Loans, and TEACH Grant service obligations
Perkins Loan Cancellation and Discharge
If a borrower works as a teacher in a school serving low-income families and/or in high-need subjects (like science), they may qualify to have all or part of their Perkins Loans forgiven. As a note, this program ended on September 30, 2017; only those with existing Perkins loans can potentially qualify for this.
Eligible loan types: Federal Perkins Loans
Teacher Loan Forgiveness Program
Teachers who complete five complete and consecutive academic years in a low-income school and meet other qualifications, may be Eligible for forgiveness of up to $17,500.
Eligible loan types: Direct Loans, FFEL Loans, and some Direct Consolidation Loans
As of right now, these are the primary federal loan forgiveness programs offered by the government. Borrowers may also qualify for loan forgiveness if they die, or if the school closes, or makes fraudulent claims. Rarely, loans can be discharged in the event that a student files for bankruptcy .
There are also loan forgiveness programs for borrowers of a particular profession (such as dentists or firefighter student loan forgiveness), or by state. For example, many states have their own loan forgiveness programs for nurses.
Because these aren’t federal programs, they may have different requirements for applicants. One thing they all likely have in common? They require a certain amount of work (“service”) before loans are forgiven. These programs exist to entice workers into particular fields or in high-need locations.
Student Loan Forgiveness Scams
Now that we’ve wrapped our heads around actual student loan forgiveness programs, we can talk about the common ways that we see student loan forgiveness scams play out.
First, there is an important distinction between a scam and paying for something that you just might not necessarily need. Think of it like paying an accountant or a financial advisor. While you could technically do your own taxes and manage your own money, it could be worth it to you to pay someone for help.
If you are paying someone to help you file the necessary documents for loan forgiveness, and they do so, this is not necessarily a scam. It’s a bit of a grey area, because while there are organizations that charge a moderate fee for legitimate credit counseling services, they’re almost always assisting the borrower with something that can be done for free.
The more overt scam is when a company does not deliver on what they claim, or when they offer something that is not possible. For example, if a company claims that with an up-front fee that your loans will automatically be forgiven, it is a scam. No program exists where loans are “automatically” forgiven for a fee.
(It’s important to note that student loan forgiveness program scams are aren’t the only type of scams that exist in the sphere of student loans. There are loan consolidation scams and scams that promise lower student loan payments. This article simply happens to be about student loan forgiveness scams.)
If you have a feeling that you might be getting scammed, be sure to do a thorough internet search for the company. More than likely, someone else has been in contact with, and possibly taken advantage of by, this company. Also, Nerdwallet keeps an updated list of fraudulent student loan companies.
In the last five years, a few widespread scams have cropped up. One is called the “Obama Student Loan Forgiveness Plan,” and more recently the “Trump Student Loan Forgiveness Plan.” Neither of these programs are real, so beware of any program advertised as such. They are scams.
The problem with relying on an internet search to look for a scam? Not every scam will have been identified through an internet search, as they change their names and phone numbers often to avoid the background research a consumer might conduct.
Here’s a list of things to watch out for.
A Promise of Immediate Forgiveness
Beware of any promise that seems too good to be true. Student loan forgiveness takes time, period. A company can only help you fill out paperwork for a forgiveness program; they cannot forgive your loans.
A Request for an Upfront Fee
Many scams rely on obtaining an upfront fee for something that either cannot be done (immediate loan forgiveness) or something that can be done for free, online (apply for a loan forgiveness program). You should only agree to payment once the company has completed the service in question.
Private Loan Refinancing
In general, only federal loans are eligible for loan forgiveness programs. Be cautious of any company that tells you that they can get your private loans forgiven. Private loans don’t typically offer forgiveness programs.
A Phone Call
Many scams start with a student loan forgiveness call. The Department of Education, who directs federal loan forgiveness programs, will never call you. If they need to correspond with you, they will by mail.
A Request to Pay Them and Not Your Lender
No company will ever make your student loan payments for you. You can pay them for a service, sure. But it is unwise to make your student loan payments to anyone except for who you owe.
A Request to Stop Making Student Loan Payments
No legit company will ever recommend you stop making your loan payments. A company working in your best interest will advise you make all of your payments on the correct repayment plan so that you’re sure to qualify for any applicable loan forgiveness programs.
A common scammer’s tactic is claiming that loans are forgiven, while putting a borrower’s loan into forbearance so that payments temporarily stop. Borrowers come to find out months or years later that the loans weren’t forgiven and have instead been accruing interest.
Asking for Your FSA ID
No one should ever ask for your Federal Student Aid ID. Your FSA ID allows you to log onto the government website where borrowers manage their federal student loans.
Fraudsters do a good job of making their websites, seals, and paperwork look like official government branding. Just because something looks official does not mean it is official, so do your research.
Know Your Options
Here’s the reality: Not everyone qualifies for loan forgiveness. Others may not actually find that it makes the most sense for their own personal financial situation. (This may be especially true for loan forgiveness programs that require you to pay taxes on the forgiven balance, such as income-driven repayment.)
For everyone else who is looking for ways to legitimately lower the amount they owe on their student loans, consider refinancing. Refinancing your student loans with a private lender, such as a credit union or an online company such as SoFi, could save some borrowers money.
When a borrower refinances, they are essentially paying off their existing loans, both federal and private, with a new loan ideally at a lower rate. A lower rate could mean lower monthly payments and less spent on interest during the life of a loan.
No matter what path you take with your student loans, always be sure to do adequate research. It’s hard to scam someone that understands their loans, and their options for repaying them.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice about bankruptcy.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.