Student Loan Relief

On to a subject near and dear my heart – student loans.

After spending eight years at pricey private universities earning a B.A., J.D., and M.S.J., I have learned the hard way how difficult it can be to deal with a massive student loan debt. Often, those who decide to embark on an expensive education assume their schooling will prove lucrative enough so their earnings more than cover any monthly payments.

Sadly, this is not always the case. Recession aside, there are manifold pitfalls waiting for graduates overburdened with student loans. Expectations of a high income often fall flat. Wages have been depressed for years, and are not keeping up with cost of living or inflation. Even for those who manage to snag a job in their field, with all the competition for employment, the salary may not be as high as one would hope.

We are the only Western nation that does not offer some sort of subsidy for university students to assist them with their education. (You can argue that public schools are subsidized, but many of the better public universities charge a premium, especially if you are an out of state student). In addition, a college degree in the U.S. is among the most (if not the most) expensive in the world. This would be fine, if salaries were still at a level to support recent grads debt load – but it’s not. And many graduates find themselves captives to their student loans, unable to change careers, lest their incomes drop precipitously.

The good news is that many students were able to avail themselves of great interest rates in recent years – some as low as 4%. (I may be aging myself, but I [unfortunately] consolidated years and years ago, when 7% was considered an AMAZING interest rate). If you consolidated during this time, at least you can rest assured that you are locked in to the lowest rate we’ll likely see in our lifetimes.

However if you aren’t making much money, no matter how low your monthly bill, it’s a struggle to pay. Many graduates find themselves shuffling money around, robbing Peter to pay Paul, or going into forbearance or deferment. The downside to these options is that your interest may still capitalize on your loan, meaning you emerge with a higher monthly payment than before.

If you are willing to do some research, have some career flexibility and an open mind, then there are programs out there that can help you, which are geared toward helping alleviate student loan burdens. One caveat: Most only apply to federal loans, and private loans are usually ineligible.

Here’s a rundown:

1. Public Service Loan Forgiveness Program – This could be one of the most helpful programs for reducing your student loan payments while your income is reduced.  Beginning in July 2009 an aspect of this program is open to anyone with federal loans, regardless of whether you are in a public service profession.  The Income-based Repayment Initiative caps student loan payments based on income and family size.  If you have been laid off, or had your income significantly reduced, run, don’t walk to this website:

www.ibrinfo.org

In addition, workers in a wide variety of public careers can have their debt erased after 10 years of payments. Eligible professions include teachers, government workers, social workers, law enforcement officers, nonprofit workers and those employed at public universities and hospitals.  After ten years full-time on the job, these workers can have their student loan debt excused.

2. AmeriCorps – This national network of service programs requires a year commitment. In exchange, graduates receive a small living stipend and at the end of the time period an award of $4,725 that can be applied to student loan debt or future education programs.
3. Peace Corp - Requires a two-year commitment.  Participants are allowed to defer loan payments during their service.  If you have a Perkins loan, you are eligible for a partial cancellation benefit of 15% for one year of service, up to 70% for four years.  And according to the Peace Corp website, volunteers also get a $6,000 allowance after completion of service, a portion of which can be used to repay student loan debt.
4. Teach Grant – If your goal is to teach, there are a couple of programs available to help.  AmeriCorp is listed above, and now there’s also Teach Grant, which is part of the College Cost Reduction & Access Act of 2007.  The grant targets teachers who commit to work in schools serving students from low-income families.  Participants can earn up to $4,000/year in grants that can be applied to student loan debt.  However, a four-year commitment is required, and if not completed, the grant money gets converted into an unsubsidized Stafford Loan.
5. Teach For America – Similarly, TFA rewards graduates who teach in urban and rural schools for a two-year period.  Those chosen receive an education award of $4,725 for each year of service, which can be applied to student loans or future education.
6. Federal Perkins Loan Program & Stafford Loan Program – There is a provision of the FPLP that allows certain teachers to receive loan cancellation of up to 100% if they teach in low-income schools or in certain high-need subject areas like math and science.  Stafford Loans also offers up to $17,500 in loan cancellation for teachers who serve five consecutive years at low-income schools.
7. National Health Service Corps Loan Repayment – Offers up to $50,000 in student loan forgiveness, tax-free, for primary healthcare workers including dentists, psychologists and physician assistants who work in areas with medical professional shortages for two years.
8. SponsorChange.org - This program allows graduates to volunteer part-time at community and non-profit organizations while working, in exchange for student loan stipends paid by donors.  This is a great idea and a wonderful program, however it is only available in Pittsburgh for now!

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