Students Left Holding the Bag as Loan Forgiveness Programs Vanish

Student Loan Girl — Wed, 03 Jun 2009 22:30:00 GMT

College graduates who were lured into high-need fields, including teaching, nursing, and public service, by programs that would forgive a portion or all of their student loans are receiving this sobering news: The cavalry isn’t coming after all.

These graduates, who in some cases were enticed by the loan forgiveness programs to take out student loans that exceeded their earning potential, are now discovering they’re on the hook for their large debts — and are struggling to pay them — because the state agencies originally offering the loan forgiveness can no longer afford to do so.

“We’d gotten married in June and bought a house, pretty much planned our whole life,” said Travis Gay, a special education teacher in Kentucky (“Recession Imperils Loan Forgiveness Programs ,” The New York Times, May 27, 2009).

Gay and his wife, Stephanie, also a teacher, thought they had a handle on repaying the $100,000 they owed in combined student loans. They were under the impression that a portion of their college loans would be forgiven each year over the next five years under a state program offering loan forgiveness for schoolteachers.

Then the Gays received a letter from the Kentucky Higher Education Student Loan Corporation, the lending agency that offered the program, “saying that our forgiveness this year was next to nothing.”

The student loan agency contends that it never promised the thousands of indebted public school teachers and nurses who have been affected by cuts to the program that their loans would definitely be forgiven. Financing for the loan forgiveness program was never actually guaranteed, says Ted Franzeim, vice president of customer relations for the student loan agency.

And it’s not just Kentucky borrowers who are being hurt by program cuts. Student loan forgiveness programs are on the chopping block throughout the country as the state agencies and nonprofit student loan organizations that sponsor these programs reel from dwindling government aid and strained market conditions.

The New Hampshire Higher Education Loan Corporation, for example, suspended its loan forgiveness program for teachers, and the Pennsylvania Higher Education Assistance Authority has put the brakes on its loan forgiveness program for nurses and people called to active duty in the military.

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Students Left Holding the Bag as Loan Forgiveness Programs Vanish