Understanding The Different Types Of Loan Forgiveness?

Answer 1

Loan forgiveness is a term that is used in several financial contexts. The basic meaning is that a lender or bank is cancelling a loan agreement and does not expect the borrower to repay any of the remaining balance. The term is most often applied to student loans since there are programs in place that provide forgiveness if certain conditions are met. There are also instances where a mortgage loan can be forgiven or where a private lenders, credit card companies or banks will forgive a loan.

Student loans that are federally backed are the most commonly forgiven types of loans. Current regulations state that any federally backed student loan will be forgiven after a 25-year period if the student has made regular payments for the entire time. A number of other forgiveness programs require students to work in a specific industry like healthcare or in a certain understaffed area for a number of years before the debt is cancelled. There are some rare instances where problems with an educational institution like a sudden closure or falsified credentials could result in forgiveness as well.

Large lending institutions perform loan forgiveness on mortgages under certain situations. The most common situation is when a home goes into foreclosure. After taking possession of the property the remaining balance of the mortgage is forgiven so that the borrowers no longer have to make payments. Another situation occurs when a loan is modified in order to lower monthly payments. The lower payments often increase the total amount of the loan that must be paid over the next decade. Some lenders will forgive a portion of this amount in order to keep the total value of the mortgage the same.

Some types of loan forgiveness occur because of intervention by an attorney or a debt relief company. This sometimes occurs with unsecured loans. Borrowers give the lender a single lump sum of money in exchange for the discharge of the remaining balance of the loan. Some loans are also forgiven if there are dramatic changes in the life of an individual. This could mean a sudden debilitating disability or the loss of all assets and employment. These situations are assessed on an individual basis and do not always result in forgiveness.