Word to the Wise on New Loan Forgiveness Programs: You May Not Qualify

Student Loan Girl — Tue, 10 Jun 2008 22:56:00 GMT

College students looking to relieve their federal student loan debt “will be sorely disappointed” with the government’s new loan forgiveness programs that will begin in 2009, according to an article in U.S. News & World Report (“The Problem with Federal Loan Forgiveness Programs,” May 28, 2008).

Under the public-service loan forgiveness program, students must make payments on their student loans for 10 years before the loans can be forgiven, said Diane Auer Jones, assistant secretary for postsecondary education, at the College Savings Foundation conference last month. Since a majority of federal student loans have a 10-year term, there may be no loan balance left to be forgiven.

In addition, the Department of Education is concerned that "some students will see the program and take on more debt than they would have otherwise, not realizing it is unlikely that most of their loans will be forgiven," Jones commented.

The public-service loan forgiveness program grants $4,000 in “Teach grants” to students studying to be teachers in “high need” classrooms. But teachers who accept the grants and do not end up working in needy schools, will see those grants turn into loans that have to be repaid. Based on the outcome of similar government programs, up to 80 percent of grant recipients ended up having to repay their grant-turned-loan with interest, U.S. News reports.

Robert Shireman, director of the Project on Student Debt, suggests instead that students consolidate their loans under the federal government’s new Income-based Repayment option. The program allows low-pay service workers to make reasonable monthly payments based on their income level and to have the balance of the loan forgiven after 120 payments.

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Student Loan Blog : Income-Based Repayment

Word to the Wise on New Loan Forgiveness Programs: You May Not Qualify