While there are many military personnel opportunities, it is hard to find a debt relief program when it comes to veterans. One of the most beneficial ways of getting rid of the debt is through the disability discharge program. Recently, the Trump Administration was very active in this field. They announced that they would automate the process so that disabled veterans will eliminate their debt even without application. Such attempts in student loan forgiveness for veterans create hopes. However, still, not many options are available to veterans. In this guide, we will discuss three programs to reduce or eliminate the debt for veterans. Next, we will provide additional debt relief options to consider if the forgiveness plans are unavailable.
Disability Discharge
One of the best student loan forgiveness for veterans is the permanent disability discharge program. This program ensures that veterans with total or permanent disabilities can get rid of their student debt fully. Veterans can qualify for this program if they can prove their conditions.
Disability discharge applies to Federal Direct, Family Education, and Perkins loans. It also relieves applicants from the TEACH Grant obligation. Veterans can get a successful discharge if they provide necessary information about their conditions to the Department of Education. Therefore, they need to fill the loan forgiveness application and add supporting documents that prove the disability. Sometimes, the process can require a physician to fill the part of the form relating to the disability information.
The physicians’ report should show that the veterans have a physical or mental disability that restrains them from engaging in gainful activity. Besides, the disability has continued or will continue for more than 60 months. Plus, the condition can even result in death. Later, the veteran or a family member can mail the application, together with all supporting documents. Once received, the Department of Education will review the case, and inform about the results.
Trump Forgives Student Loans for Veterans
In 2019, the Trump administration announced that it would erase the debt of around 25000 disabled veterans. Disability discharge was not a new student loan forgiveness for veterans. What Trump did was easing the process. While the Total and Permanent Disability Discharge existed, only a small portion of the borrowers applied to this student loan forgiveness for veterans. One of the reasons for low participation was that some veterans had brain injuries, and they could not apply to such programs. Others did not have much information about their opportunities to eliminate student loan debt. As a result, Trump made this process automatic and erased the debt of almost 25000 veterans without their applications. Plus, the forgiveness was not taxable income. However, if veterans who did not benefit from automatic discharge, they can still apply to the program and get their debt eliminated.
What Happens After the Application?
This student loan forgiveness for veterans requires suspension during the review process. IT means, when the Department of Education receives the application, it will contact the loan holders and demand that they stop payment collection. During the review, the veterans do not need to make any payments. However, if the loan is in default, and the holder collects the payment through wage garnishment, it can continue during the review. After checking the application and supporting documents, veterans will get a notification about the final decision.
Perkins Loan Discharge Program
One of the straightforward student loan forgiveness for veterans is the Perkins Loan Discharge program. Unlike Disability Discharge, this program might not bring full elimination of the debt. However, it is easy to be qualified as it requires one year of service in the military in high-risk areas. Some organizations also call this discharge program a National Defense Loan Discharge.
There exist some misconceptions that the Perkins Loan Discharge program is only for teachers. However, this student loan forgiveness program also aids veterans, close relatives of victims in the 9/11 events, and people with disabilities.
The rate of the discharge depends on the period of the service. For one and two years of eligible service, veterans can get a 15% reduction in their principal debt per year. In the next two years, this rate increases to 20%. Lastly, serving for five years brings 30% student loan forgiveness for veterans. Yet the discharge can be complicated. Veterans who served in high-risk areas or a hostile fire can even get a full discharge for serving five years starting on or after the august of 2008.
Application to Perkins Loan Discharge
Unfortunately, the application details are not precise when it comes to this student loan forgiveness. Official sources mention that the application should be made directly to the school, which offered the loan. In other cases, the school’s loan servicer is the one the claims should be directed to. Only these parties can provide the necessary forms and inform veterans about the whole process.
Army National Guard Student Loan Repayment
This loan repayment plan is available to prior or non-prior soldiers, together with current guard members. As a student loan forgiveness for veterans, this opportunity has many challenges. The eligibility list of the program is so extensive that it can confuse the applicants. Also, the qualifications vary depending on which cattery an applicant belongs to. For simplicity, in this article, we will discuss the necessary conditions for prior soldiers.
One of the requirements is having at least six years of service. Plus, the soldier should be enlisted in grade E-7 or below. Besides the service, there exist education and training related elements. For example, an applicant should finish training, such as basic combat, within a year after enlistment. Getting a minimum 31 score in the Armed Forces Qualification Test is also necessary. Unfortunately, if prior soldiers have benefited from other repayment programs, they cannot apply to this student loan forgiveness. There exist many more requirements, but it will be better to have a one-to-one consultation or ask the recruiter for guidance.
In general, applications will be successful if the loan appears in the National Student Loan Data System of the Department of Education. If the loan is not in the name of the veteran, it will not qualify for the program. Also, applicants with only state or private loans cannot benefit from this student loan forgiveness for veterans.
Benefits of the Program
After reviewing the extensive requirements and restricting elements, it can be interesting what people will get in return for these challenging conditions. In general, the Army National Guard Student Loan Repayment will help successful applicants to cover 15% of their outstanding debt per service year. Veterans should keep in mind that the tax will be deducted. Alternatively, $1500 can substitute the tax amount. The final decision depends on whether the tax is higher than the $1500. Whichever is great is considered. There also exists a maximum level of this student loan forgiveness program, which is $20000. Again, applicants should consider the effect of the tax on this amount.
The loans, such as Federal Family Education, Direct, and Perkins, are eligible for the program. Applicants should receive the loan only for educational purposes. Therefore, if a veteran benefited from a consolidation program, this student loan forgiveness opportunity will only be applicable to the amount made for education. On the other hand, private, equity, or state loans do not qualify. Also, PLUS loans in the name of another person than the prior soldier or the consolidated loan cannot be eligible for a different purpose.
Payment Process
If the application is successful, the payments are directly made to the lender. The first payment happens when the applicant finalizes one year of service. The payment equals the outstanding balance minus the taxes. Applicants need to keep in mind that their interests are not included. The forgiven amount is also subject to the taxes at the end of the year. This student loan forgiveness for veterans does not guarantee any reimbursement for previous payments.
What Other Options are Available?
Veterans might not be the luckiest people in terms of student loan forgiveness. There are only a few opportunities to get rid of the debt through student loan forgiveness for veterans. Though the recent news about Trump’s positive decisions for veterans can create hopes, what he did was not a huge issue. If Trump came up with a new program for veterans, this decision could have benefitted more people. However, what he did was automatization of existing forgiveness, which is disability discharge. Sure, even a small favor aids thousands of people. Yet, the options for veterans are limited.
If they cannot find a forgiveness program to reduce or eliminate their debt, it can be wise to consider other options.
Consolidation
Loan consolidation can be one of the programs which will ease the debt management for veterans. It is hard to make payments when the income level is low, and expenses exceed the revenue. In this case, debt consolidation can be an alternative to student loan forgiveness for veterans, if it is not available. Consolidation combines two or more federal loans into one loan. Veterans will get a new larger loan and payout all other existing debt. Then, they will start making one payment per month for the new loan.
Benefits of Consolidation
One can think that consolidation is the mere movement of resources that does not change the result. However, there exist many pros of consolidation. Sometimes, it is possible to get a lower interest rate in the new loan. As a result, a veteran will have lower monthly payments, which can be more affordable at a low-income level. Also, managing one loan is much easier than multiple loans. As there is only one payment deadline, issues like missing the payment or paying inadequate amounts will not happen.
On the other hand, the downside of this alternative to student loan forgiveness for veterans is increasing the total debt balance. As the monthly payments decrease, veterans will pay back the debt for an extended period. It will result in a more significant difference between the loan amount and the owed debt. However, if the current income does not allow proper payments, consolidation is worth considering.
Negotiation
Another option to consider instead of student loan forgiveness for veterans can be a negotiation. This opportunity is more useful when veterans have private student loans. Negotiation aims to convince the lender to provide better loan terms. As a result, a veteran will be able to pay back the debt. One of the benefits of this program is that borrowers can get lower interest rates. If they can prove that their income is not enough to afford the monthly payments, they can decrease the interest rates. In this way, the debtor will have lower expenses per month. Another changed condition can be prolonging the payback period, which will again decrease the payment amount. Lenders can even give some forbearance period to the borrowers until they recover their financials. In rare situations, some student loan forgiveness for veterans can be achievable with this technique.
One can think that the lender has no incentive to provide better terms. Lenders are not obliged to change the terms. However, if the borrower is not able to pay back, then they can default. In the best case, the lender can sue the debtor to breach the contract as non-payment is against the agreement. Yet, the court fees are too high, and getting help from a lawyer is even more expensive. For these reasons, it is for the lender’s favor to help the debtor continue making the payments.
What is Needed for Negotiation?
Negotiation is a valuable skill. Not everyone can effectively negotiate with the lender and convince them to make changes in the loan terms. The process requires much patience and smart tactics. Borrowers should not forget that private lenders are free to act in a way they want. Hence, the lender is not obliged to agree with the debtor. Therefore, getting angry, forcing the lender, or creating disputes would only hurt the borrower.
It is advisable that the debtor communicates several times with the lender and explains his/her financial difficulties. Also, proving that they can not afford the debt payments can help convince the lender. Another beneficial technique is showing good faith. It means, debtors need to indicate that they did everything they can to pay the debt, but they are not capable of it. Their negotiation with the lender does not aim to give the debtor to avoid the payments, but enable the borrowers to fully cover the loan. Such good faith is necessary to get a favorable response from the lender.
Getting an Expert Help
Negotiation is a low-risk technique with enormous opportunities for debtors. All it takes is communicating with the lender. If the lender does not agree, then there is no harm. However, sometimes, people act so unprofessionally that they face negative consequences. Besides not convincing the lender to better terms, they start a dispute with the lender. In return, lenders can even sue the borrowers. Negotiation requires an extensive list of skills, such as effective communication, active listening, networking, and persuasion tactics.
As not many people possess these skills, they fail in this process. Therefore, it can be better if they get expert help. Companies that are experienced in this field have established networks with many different private lenders. They can use their network in favor of the debtor and convince the lenders to provide better terms. These experts have the required time and patience to persuade the lender slowly without causing a backlash. If there is no way to enjoy federal student loan forgiveness for veterans, then considering negotiation is a worthy option.
What about the Credit Score?
Some people are worried about their credit performance if they utilize alternative options to student loan forgiveness for veterans. It is hard to tell that the credit score will not be affected by these programs. Sure, if debtors cannot meet their obligations and wait for a favor from the lenders, it will negatively reflect their credit history. However, this barrier should not restrict borrowers. If they do not utilize one of the forgiveness programs or alternative options, they will not afford the payments. In either way, their credit scores will fall. Yet, there can be a hope for increasing scores when they pay out the debt after utilizing one of the techniques we discussed in this guide. Hence, there is no reason to sit and wait for a miracle to make the debt disappear.