Student loan forgiveness program

[Martha]

For those of you young dreamers who work for government or for nonprofits, you may be able to get a portion of your student loans forgiven. A lawyer friend sent me this information on the program:


Student Loan Forgiveness for 501(c)(3)s and Public Sector Employees
On September 27, 2007, President Bush signed into law the College Cost Reduction and Access Act (HR2669). In addition to a number of provisions providing financial and debt repayment support to current or past college students, the bill establishes a loan forgiveness program for individuals working for 501(c)(3) nonprofit organizations or in government. The loan forgiveness program allows the Secretary of Education to forgive 1/10th of the balance of federal student loans held by 501(c)(3) or public sector employees for each year of the repayment period in which their income was less than $65,000. This program applies to all public service employees(including employees of 501(c)3's)who:

• Have not defaulted on their loans
• Have made monthly payments on their loans for 120 consecutive months after October 1, 2007
• Were employed full-time with a 501(c)(3) or in the public sector during the entire 120 months during which they made their payments

The loan forgiveness program is not retroactive in the sense that, if you have been making payments for 10 years or more, that payment history and schedule does not qualify you for loan forgiveness. However, it is retroactive in the sense that any debt incurred prior to the development of this program is eligible for forgiveness so long as you meet the qualifications listed above and have a current debt repayment schedule that is longer than 10 years. See the section below on who benefits and who doesn’t for specific examples.

The Department of Education is currently working out rules and regulations for implementing this program. The current timeline is for those regulations to be published in a few months. These regulations will answer more specific questions, such as: what payment schedule will allow individuals to qualify, the process for obtaining loan forgiveness, and other miscellaneous administrative issues. Visit www.ed.gov for more information or to obtain the specific regulations when they are made public.

Who benefits?

• If you work for the government or a 501(c)(3) nonprofit and you make payments for 10 years beginning October 1, 2007, then the balance of your debt will be forgiven if you made less than $65,000 for the entire period.

• • If you made more than $65,000 during any of those 10 years, then you will only receive loan forgiveness equal to 1/10th of the remaining debt for each year in which you were below that income threshold. For example, if you made greater than $65,000 for 2 of those 10 years, then your total loan forgiveness would equal 80% of the remaining balance.

• If you have existing student loans on which you are currently making payments, you can still participate in the program. However, this will only benefit you if your repayment schedule is longer than 10 years as of October 1, 2007.

Who doesn’t benefit?

• If you changed jobs during that 10 year period and are employed by a job in the for-profit private sector, you no longer qualify for the loan forgiveness program. The 10 year repayment period would effectively restart if you returned to the nonprofit or public sector.
• If your current repayment schedule is shorter than 10 years as of October 1, 2007.
• If your current repayment schedule is longer than 10 years as of October 1, 2007, but your income is greater than $65,000

[Coach]

Wow, Martha, thanks for posting this! This could really help out some folks.

Coach

[jazz4cash]

Thanks for the info, but if I understand this correctly......I am not impressed. Sounds like a program that will benefit the politicians (by saying look what we did!) more than the borrowers.
My daugter just graduated with student loans and is currently employed in a job that would qualify her for this program, BUT
-standard repayment period is 10 yrs
-extended and graduated repayment plans are available that run 12-30 yrs.... A 30 yr term on a student loan does not sound smart.

The loan balance after making 10yrs of payments will be greatly reduced. I would think the loan reduction would be more beneficial if given up front....maybe a credit that is earned gradually. Good luck to anyone if this helps them, but I think I will continue to advise my daughter to pay her loans as quickly as possible and hopefully get over the 65k threshold.

[bright eyed]

hmm, more info here...Student loan forgiveness program a blessing and a curse

sad to think that 10 years after you graduate you will only make $65k - and that is projected for 2017? but likely true in some nonprofits but i don't see that being the case for the majority of govmt or teachers etc...

the current forgiveness program does not help very many people - this doesn't seem too much better...

one of my closest friends has $100k loans from law school and is having a very tough time making payments, rent and doing the work she wants (civil rights law) while her roomy from law school is already making over 6 figures in the private sector...the above program also only covers a portion of the loans (the federal ones) while most people have a huge patchwork of loans to cover all their school expenses...

[Martha]

I agree, not very impressive. Plus you have to be making payments in the years you are making very little money. It should be a forgive as you go program to be meaningful.

[youbet]

DW and I have been cleaning out filing cabinets here at home over the holiday weekend. Last night we got to the folder with her National Defense Loan information. She went to college from 65 through 69 and took on a huge loan load as she went to a private school with no parental help.

After graduating and beginning her teaching career, she was granted 10%/year for each year she taught and 15% for each year she taught in a designated low income area or taught special ed kids, which was most of the time.

Much more generous than the plan being put forth today.

Edited to add........ yes, we still have 30+ year old junk in our filing cabinets. But we're fixing that right now!

[jazz4cash]

FWIW, the direct loan program ALREADY has at least two pretty good discount mechanisms built in. One is a .25% rate discount for making payments electronically. Another is an origination fee rebate that is credited after making 12 months of timely payments. These loans are extra easy to obtain, and extra extra confusing and complicted. I don't think these loans could ever pass the truth in lending act. I was trying to explain the statement to my daughter....I couldn't figure it out! Anyway, it would have been easy to modify the existing discount mechanisms to further benefit certain borrowers, but instead of doing it the easy way, they come up with an entirely new additional discount plan and overlay what's already in place. Oh...and the rate is approx 8%, so it's no bargain.

[karlahaze]

Hello everyone, I am 22 years old and I am interested to have a nursing degree. But I don’t have enough money for that and I am looking for a student grant. My parents didn't fill out the FAFSA (Federal Application for Financial Student Aid) in time, now I have hardly any money except savings to spend. Anyone knows how to apply for a free federal grant for a nursing student (UCSF)? Thank you all.

[chinaco]

My attempt at wry humor.

Free money for people who work. Wow, I wish I could sign-up.

I guess I did, but on the wrong side of the transaction. I am one of the payers.

[Texarkandy]

Is this program possibly designed more to benefit the lenders on loans where the debtors are likely to default anyway?