1-800-555-TREE (1-888-281-6836)
Student Loans

The Truth About The Obama Student Loan Forgiveness Program

obama student loan forgiveness

If you took out student loans to pay for your education, you may have found yourself asking: “How do I repay my student debt when my income is so low?” Then one day, scrolling through your Facebook feed, you spot an advertisement for an Obama Student Loan Forgiveness Program.

You think your student loan challenge has been solved! But instead, what you get is a student loan debt relief company that charges you thousands of dollars to do something you could do yourself for free–sign up for an income-based repayment plan or consolidate your federal student loans.

Let’s look at the truth about Obama student loan forgiveness, how to spot other student loan forgiveness scams, and what legitimate student loan forgiveness options exist, so you can make the best choice about repayment forgiveness and your student loans.

What Is Obama Student Loan Forgiveness?

The Obama Student Loan Forgiveness Program got started when, in 2009, the income-based repayment (IBR) plan first became available to students and graduates who made on time payments through the Obama administration. When the IBR payment plan was introduced, monthly payments were required at no more than 15% of a borrower’s discretionary income.

The law around the IBR payment plan was replaced in 2010 by President Obama and required monthly payments on student loans under the IBR plan to be no greater than 10% of a borrower’s income.

IBR is intended to ease the struggle of low-income graduates paying back their student loans. The challenge has been getting exposure for the IBR payment plan so that those who it can impact the most will be able to utilize it. Because of its limited exposure and student loan borrowers knowing little about it, many companies cropped up to prey on unsuspecting graduates with student loan debt, claiming to provide Obama student loan forgiveness debt relief options.

There are many ways this Obama student loan forgiveness scam impacted borrowers.

  1. Graduates were charged exorbitant fees for services which were free. This included income-driven repayment plans and Public Service Loan Forgiveness;
  2. Graduates were charged to consolidate their student loans;
  3. Consolidation of federal loans with private loans made those loans ineligible for IBR and Public Service Loan Forgiveness.

Although there is no Obama student loan forgiveness program, as stated by the advertisements and companies promoting the scam, the scam got its name from the income-based repayment plans offered by the government during president Obama’s administration.

There are four such income based repayment plans in place today. You can apply to them for free through this government website: StudentLoan.gov. Before we discuss those in detail, let’s talk about how to spot other scams, so you don’t get caught in the trap…

Ways to Spot Student Loan Scams

Applying for an income-based repayment plan, or consolidating your federal subsidized and unsubsidized student loans, is simple and free through StudentLoans.gov. But there are four types of scams that exist that will try to charge you money for these free services.

  • Service and processing fees: Any company charging service or processing fees for getting you enrolled into an income based repayment plan for your federal subsidized and unsubsidized student loans is a scam.
  • Consolidation fees: Any company offering to help you consolidate your federally funded student loans for a fee is a scam.
  • Settling through a law firm: A law firm that claims they can help you settle all of your student loans for a fee is running a scam.
  • Completely eliminating student debt: Any company that states they can wipe your student loans clean and eliminate the debt completely for you is not telling you the truth and attempting to scam you.

Now that you know the four types of scams set to ensnare you, let’s make sure you know the warning signs they all have in common:

  • Fees: Any company or website charging a fee to reduce your payment based on income, or consolidate your federally funded student loans, is not working for you, but against you. You should never pay for a service that the government offers at no charge.
  • URLs: Only URLs ending in .gov are official websites of the U.S. government. Any company presenting itself as ‘Federal’ or ‘National’ with a URL ending with something other than .gov (.com, .net, .us) is probably trying to scam you.
  • Advertisements: It costs companies money to run advertisements on Google, Facebook, and other social media websites. They are spending money to draw in customers for a service that is free, but they cover the cost of the ads by charging fees. So beware of advertisements for services offered by the government and the Department of Education for free.

Other Forgiveness Options

Despite scam companies offering to help you reduce your monthly student loan payments, or help you receive forgiveness for a portion of your student loans for a fee, there are many legitimate payment plans and forgiveness programs available for free through the government. Here’s an overview of the four types of income connected payment plans for your student loans:

Income-based

  • How long has the payment plan been available? This payment plan became an option in 2009 and its terms were revised on July 1, 2014.
  • Do your federal student loans qualify? All Direct loan types qualify. Parent PLUS loans do not qualify, but GradPLUS do qualify.
  • How much will you pay? 10% of the discretionary income you make if your student loans originated on July 1, 2014 or after. 15% of the discretionary income you make if your student loans originated before July 1, 2014.
  • When will your federal student loans be forgiven? If your loans originated before the plan was revised in 2014, your student loans will be forgiven after 25 years of qualifying payments. If your loans originated after the income-based plan was revised in 2014, your student loans will be forgiven after 20 years of qualifying payments.

Income-contingent

  • How long has the payment plan been available? This payment plan became an option in 1994.
  • Do your federal student loans qualify? All direct loan types qualify. Parent PLUS loans do not qualify, but GradPLUS do qualify.
  • How much will you pay? 20% of the discretionary income you make or what you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income.
  • When will your federal student loans be forgiven? After 25 years of qualifying payments.

Pay As You Earn (PAYE)

  • How long has the payment plan been available? This payment plan became an option in 2012.
  • Do your federal student loans qualify? All direct loan types qualify. Parent PLUS loans do not qualify, but GradPLUS do qualify.
  • How much will you pay? 10% of the discretionary income you make.
  • When will your federal student loans be forgiven? After 20 years of qualifying payments.

Revised Pay As You Earn

  • How long has the payment plan been available? This payment plan became an option on December 17, 2015.
  • Do your federal student loans qualify? All direct loan types qualify. Parent PLUS loans do not qualify, but GradPLUS do qualify.
  • How much will you pay? 10% of the discretionary income you make.
  • When will your federal student loans be forgiven? After 20 years of qualifying payments if you only carry undergraduate student loans. After 25 years of qualifying payments if you carry any graduate student loans.

What if I Don’t Qualify?

Many of the forgiveness programs available through the government are based on your occupation, years of service in your career field, and loan type—for a full guide of your options, check out this student loan forgiveness guide.

Some graduates find they don’t qualify for any of the student loan forgiveness programs for one of these three reasons:

  1. The field you work in;
  2. The type of student loan;
  3. Your overall income.

If you don’t qualify, you still have options to help you with your student loan payments. You may choose to ask for deferment or forbearance of your loan, consolidate your student loans, or refinance your student loans for a more manageable monthly payment.

No matter your options, LendingTree is here to guide you to the best financing option for you and help you understand both your student loans and the choices you have in repayment.