Previously, it was discussed that debts can be repaid in ways more than one. Some may do so by debt snowballing, others may look for consolidation companies, some who are already neck deep would find counseling, seek debt cancellation or just end up filing for bankruptcy. But there is also another way of repaying those loan companies and that is debt forgiveness.
Debt forgiveness is almost synonymous with debt relief, a topic discussed in another article but to give further insight about this method, we will have a look on a specific loan to apply this: Student Loans.
As discussed before, student loans are used by many to see through college or to pursue a higher degree such as masterals, doctorates and post-doctorates. Many of those who file such loans are students who are in need of financial aid or for families who wish to send their child to college but cannot shoulder all of the expenses required for such high learning. Student loans are then paid in a scheduled pattern after the child has graduated college. There are two classifications of student loans; private and federal. What sets the two apart is that federal loans are shouldered by the government whereas private loans are from the institutions themselves or from companies. As of current student loan debt has reached its $904 billion mark on the first quarter of 2012 making it one of the highest consumer delinquencies that rose- and probably the only one.
So what have student loans and college graduates got to do with debt forgiveness?
Student loans can be paid by loan forgiveness programs, often of which are applied to federal loans such as the Stafford and Perkins loans. These programs appear to be very helpful as you can receive funds to repay your loans or your loan payment is made directly by your employer to the lender.
CollegeScholarships.org has listed three popular and common loan forgiveness programs. These programs are aimed at specific professionals who choose to work at high demand areas like low incomes schools, facilities that are medically underserved or public interest attorneys who service individuals who cannot pay exorbitant attorney fees. These loans are termed as a whole as loan forgiveness for professionals. This type of loan forgiveness feature full or partial repayment on their federal student loans in exchange for a number of return services to the country.
Let us take into example the teach loan forgiveness program as this is one of the most popular loan forgiveness programs. Often this type of loan require teachers who avail this loan to service these types of academic programs and institutions: low income schools, academically critical areas such as math and science, early childhood programs or education for special or disabled children. There is high demand for such teachers in those given areas that the government is willing forgive the loans of those registered teachers just so these needs can be met. This is also done to retain talented teachers within the country. Another popular type of loan forgiveness is the Nurse Loan Forgiveness in which it was done to keep well-trained and talented nurses within the country especially when the demand is high. There is a loan forgiveness program that bases off the student’s economic hardship especially when the debtor has filed for bankruptcy. There is also what they call the Public Service Loan Forgiveness in which it was established by the College Cost Reduction and Access Act of 2007. The program features the forgiveness of any debt after one has given public service after 10 years either as a full time public servant.
Now if one would think that loan forgiveness is quite an amazing thing, it would be best that despite the pros offered by such programs, there will always be hitches present. Loan forgiveness does not differ from any of those repayment programs that sounded too good to be true. A hitch on such program is the taxability of the amount forgiven. Not a far shot from debt relief, whatever amount has been forgiven by your lender; it increases the amount taxable against you by the IRS. Fortunately, there are a few ways around this. Usually this can be done when there are certain provisions from the contract for loan forgiveness that requires you to work on certain conditions such as certain employers, minimum amount of work time, certain professions, etc. Certain programs that are legible for fund from the Public Services Act such as loan repayment made under the National Health Services Corps or (NHSC) are considered tax-free.
For more information, visit debtfreedirect.org.