10 Reasons Student Loan Forgiveness Programs Are Not Worth It

I feel ya.  Having student loan debt hanging over your head is the worst.  So the possibility of having those loans forgiven sound like a godsend.  But are these student loan forgiveness programs really worth it?

Before you dive into something with just the mere promise of possible forgiveness make sure you know exactly what you are getting yourself into.

While there are some benefits to signing up for student loan forgiveness programs, there are quite a few downsides as well.  And you should know whether these programs are right for you and your financial goals. 

After all, the cons just might outweigh the pros.

Here are 10 reasons student loan forgiveness programs are not worth it:

• Loan forgiveness can take a long time
• Your loans might not actually be forgiven
• Small payments could make your loan balance even bigger
• You may end up having to pay more in interest
• An increase in income could disqualify you or worse
• Missed opportunities
• You may be hit with a huge tax bill
• A change of heart or job could disqualify you
• Private loans usually aren't eligible
• Your peace of mind

Uh oh.  Suddenly, these loan forgiveness programs aren't looking quite so appealing.  Well, we'll explore these reasons and more below.  In addition, let's take a look at these programs in action with a real life calculation.

Because as they say, numbers don't lie. 

What are Student Loan Forgiveness Programs?

Student loan forgiveness programs are programs administered on a local or federal level that promises to pay back all or part of your student loans once the necessary requirements are fulfilled.

There are many kinds of loan forgiveness programs.  Some are specific to career such as loan forgiveness programs for nurses, doctors, teachers, or lawyers.  While others are based on your income and service, such as the Public Service Loan Forgiveness Program (PSLF) or the Income Based Repayment Plans.

There are even more programs specific to the state you live in so be sure to check with your local government to see the programs that are available to you.

All programs are not created equal so definitely do your homework.  You may even find that there are private organizations or companies willing to take care of some, if not all, of your debt as well.

The Pros of Student Loan Forgiveness Programs

One obvious benefit of student loan forgiveness programs is that you may be able to get your loans completely paid off.  And all without putting much of a dent in your wallet.

Here are some other pros of student loan forgiveness programs:

• some offer low monthly payments
• may be working for a good cause
• nice to get a reward for doing what you would've done anyway

10 Reasons Student Loan Forgiveness Programs Aren't Worth It

While there are some nice perks to signing up for a loan forgiveness program, there are also quite a few downsides to it as well.  10 to be exact.

Loan forgiveness can take a long time

If you are familiar with some of the federal loan forgiveness programs such as the Public Service Loan Forgiveness program (PSLF), you may be aware that these programs can take 10 years or more before your loans are even eligible to be forgiven.

And income driven repayment plans can take up to 25 years.  25 years!!

I don't know about you, but for me, that is a very long time to wait.  Making those monthly payments year in and year out for the next ten or 25 years is kind of daunting.  And I'd rather just get it over and done with.

What's more, depending on when you found out about these programs, you may not be able to wait 25 whole years before being eligible to have your debt paid off.

I mean, a sista has got to live at some point!

Now if you noticed, I didn't say your loans would definitely be paid off once you've done your time.  I said it would be eligible.  Which brings me to my next point.

Your loans may not actually be forgiven

Believe it or not, of the hundreds of thousands of people who have applied for the PSLF program only 2.41% have actually had their loans forgiven.  And that is up from the 0.032% of applications approved in the first eligible year of the program.

Yikes! The odds are not in your favor!

Sadly, you're 15 times more likely to get a raise you didn't ask for than actually having your loans forgiven with this program.

Furthermore, applying to some of these loan forgiveness programs can be tricky and time consuming with all the paperwork and qualifications.  

And as for the PSLF, if you don't fill out your paperwork correctly every year, all of that hard work you put in could be for naught.   As this can cause your application to be rejected even after you've already put in your 10 years.

So is it actually worth all the time and effort you'll have to put in to possibly have your loans paid off after 10 long years? or worse 25 years?

Small payments could make your loan balance even bigger

Another reason student loan forgiveness programs just aren't worth it is because the longer you take to pay off your debt, the more time your debt has to compound with interest.

If you are a low income earner, you can apply for the income based forgiveness programs.  These extend your payment timeline to 20 or 25 years so that you can afford to make your monthly payments.

However, in doing this, you may not be making high enough payments to cover the interest you are charged every month.  This means that over time your debt will steadily increase.

In the end, you could end up owing much much more than you originally started out with.  

And just think, if suddenly your application is rejected, you are now stuck with an even higher student loan debt that you now have to pay off.

You may end up paying more in interest

This downside to loan forgiveness programs is the result of making low payments on your debt for a longer period of time.

By extending your timeline for paying off your debt from 10 years to 20 or 25 years with the income-based plans, you lower your monthly payments substantially.  Which is great if you are struggling to make ends meet.

However, by increase the length of time you will be paying off your debt, you are also increasing the amount of interest you will pay in the long run.

For instance, if you have $50,000 in student loan debt with an interest rate of 6%, in ten years, you would have paid $16,612.30 in interest.  But, if you choose to pay it back over 20 years, the interest you would pay jumps to $35,971.73.

What's more, if you paid it over a 25 year period, it would cost you $46,645.21.  That's almost the same amount your student loans were to begin with!

An increase in income could disqualify you or worse

Every 9 to 5 employee would love a raise.  And, who knows, because of your hard work and dedication, your boss may give you a promotion and even a raise or two.

While this may seem like a good thing, it may not be so good if your are trying to have your loans forgiven.  

Why?  Because some repayment plans have income restrictions.  Which means, by getting that promotion and raise, you are now disqualified from the loan forgiveness program you signed up for.

What's worse, even if you still qualify, with income-based plans, as your income increases so will your monthly payments.  This means that with every promotion you run the risk of paying off your debt completely before you can even have it forgiven.

And the sad part is you will have paid way more in total than you would have if you had just not done a loan forgiveness program to begin with.

Missed opportunities

Another reason loan forgiveness programs aren't worth it is because of your missed opportunity costs.

While you are struggling to pay back your student loans for the next 10, 20 or 25 years, you may have to put your other financial goals on the back burner.

That means, you can forget about buying that house, getting married, or having kids for the next 10, 20, or 25 years.  Can you imagine?!

I can.  And for me, it is, most definitely, not worth it.  

You may be hit with a huge tax bill

While having your loans forgiven may seem like the ultimate godsend, it may not be.  Because what many of you may not know is that that forgiveness comes with a price.

And that, is in the form of taxes.  

Dang! That dreaded "T" word popping up again at the most inopportune times!

Whether you like it or not, with most programs, the government sees your forgiven debt amount as taxable income.  Therefore, if you have $100,000 in debt forgiven, you will have to pay taxes on that $100,000.  

And if you are in the 22% tax bracket, that would mean a $22,000 tax bill due come April.

One thing to note though is that if you receive your forgiveness through PSLF, it is not considered taxable income.  Lucky you!

A change of heart or job could disqualify you

Another reason you may want to reconsider those loan forgiveness programs is that you cannot predict the future.  While you think you may stay in your desired field forever, that might not actually be the case.

And once you change jobs, you may have to kiss your loan forgiveness goodbye.  Especially, if you do not continue on the same career path or working in a public service sector.

The rules are the rules after all.

Private loans may not be eligible

As is the case with all of the federal loan forgiveness programs mentioned thus far, private student loans are not eligible for forgiveness.

To get these loans forgiven you may have to look into other loan forgiveness programs offered by the state or other private organizations. Many of these may be career specific.

You should also check with your current company.  Or better yet search out those companies that will pay off a portion of your debt in exchange for your work.

Peace of mind

Without a doubt, getting your student loan debt paid off sooner rather than later can work wonders on your peace of mind.

Having tens of thousands or hundreds of thousands of student loan debt hanging over your head year in and year out can be a drain on your energy and your optimism.

Not to mention all the stress you have from trying to adhere to all the rules and regulations of these forgiveness programs.

In the end, it may be better to skip the stress and the threat of utter doom hanging over your head.  And just pay those student loans off with the quickness.

If that sounds like you, check out these ways in which you can start making more money and pay off that debt way faster.

Reasons to Do Student Loan Forgiveness Programs

There are a few reasons why you may want to consider doing a student loan forgiveness program.  After all, it's not all bad.

For one, if you can find a program that will pay back a huge chunk of your student loans for just a few years of working that might be something worth looking into.

After all, what's a few years of work compared to a life time of being student loan debt free?

Another reason you may want to consider a forgiveness program is if you have plans to invest.  All that extra money you would otherwise be putting towards your loans could be used to grow a nice nest egg with the right investment.  

Just be sure that these investments are good ones that will exponentially increase your net worth and not decrease it.

All in All

While I may hate having debt hanging over my head and the uncertainty of some student loan forgiveness programs, for you, it might not be that big a deal.

Nothing is ever one size fits all.  And, in the end, you will choose whichever path is best for you.  Whether that is going the loan forgiveness route or choosing to double down on those payments.

Either way, when all is said and done, you will be debt free.  And that, my friend, is the best result of all.