Student loan repayment options/federal loan forgiveness?

[Bella_mezzo]

I am finishing business school this year. In many ways I wish I had not gotten this degree, but that's a whole 'nother conversation

I will have approx. $70k in student loans. I work in the non-profit sector and I would say there is probably a 75% chance that I'll continue working in nonprofits/public service for the next 10 years...based on this, the best option for repayment would be the income based repayment with federal loan forgiveness (where payments are a certain percentage of your income and then the balance is forgiven after 10 years of full-time public service).

My concern is, what if the loan forgiveness program is eliminated in a future federal budget...then what happens to my repayments? There is no way to actually enroll in the program, so I am worried that I'd end up paying huge amounts of interest over the life of the loan...

Alternately, are there other forms of fixed rate loans that I could look into to pay these off so that I am paying back my debt at a lower interest rate? (federal student loans have an interest rate of 8.25% which is very high compared to other forms of debt right now...)

I guess basically I am asking, do you know any good lower interest loan products that would work here and/or do you have any insight as to the loan forgiveness program and it's likelihood of getting cut...

 

[rubybeth]

Hi Bella! I have helped my sister with a lot of similar questions, though I am by no means an expert. She got a masters degree to be a speech language pathologist and originally thought she would work in hospitals, but has found she loves working with junior high school students and so her pay is low compared to her debt.

First of all, there is no way to know how likely it is that the Public Service Loan Forgiveness program would be cut. I think it is unlikely with Obama in office, but who knows what's on the table in all of the budget discussions. Also, I would stick with the federal student loan programs, because they give you many options in case you ever end up in a hardship situation and can't pay. While my consolidation was happening, I called them up and expressed my annoyance at having multiple payments, and they put me in forbearance for a couple of months without my even asking or having to fill out any forms. There are also options for deferring payments if you go back to school, etc. If you take out a private loan, you don't have these protections.

It's not exactly true that there's no way to 'enroll.' If you are currently employed by a public employer and work enough hours (has to be considered full time work), you can have your employer fill out an eligibility form right now and start tracking your eligibility. My sister had her employer (a public school) do this for her. You can download this form from this page, under the question 'How can I keep track of my eligibility?': http://www.studentaid.ed.gov/repay-loans/forgiveness-cancellation/charts/public-service#how-can-i-keep

It might be possible that, if you have started tracking your eligibility and have that information on file with your lender and the forgiveness program, even if the program is cut, those who have information on file could be grandfathered in and some portion of their debt forgiven.

Under the income-based repayment plans, if you qualify, for a certain number of years (I think it might be 3 years?), if you have subsidized loans, the government will continue paying your subsidized interest, just like they are right now before you enter repayment. This isn't a lot, but it is helpful.

One thing my sister is doing is living as frugally as she can, and saving the difference in her payments each month. So instead of, for example, having a $1,000 payment each month, she now only pays $300, she is saving that $700 in savings each month, or as close to that amount as possible, instead of spending it.

 

[Bella_mezzo]

thank you so much Ruby Beth!

I hadn't heard about the government paying subsidized interest for the first few years, very interesting.

I'll start repayments this summer/fall so am trying to get all my ducks in a row. I guess I'll just consolidate in August, print out the employer form, and start there.

I wish that I could save the difference, your sister is absolutely doing the right thing there, but my husband is no longer working and is in school too and we have a 4 year old son, so our budget will be stretched to the max with just the min repayments.

 

[ponder]

Are there any state or federal programs in your field that offer loan forgiveness/repayment if you work with an underserved population? Like teachers in inner city/high risk schools, or rural healthcare programs?

 

[SB621]

I can't add anything over what RB said! However I wanted to tell you that I had well into the 6 figures with student loan/ federal loans for college. I was frugal and paid everything off within4-5 years. I mean if I had an extra $5 I sent it in to SallieMae. So no matter what payment plan you take try to send it extra $$ to pay down interest/ prinicple!

 

[pregcurious]

I have used a federal loan forgiveness program, so I can tell you about my experience. It paid $X per year, and required a commitment of X years of employment to my federal employer for each year of loan forgiveness. It was taxed, so I did not receive the full $X amount--it was counted as part of my salary, even though it was directly deposited to my loan.

The availability of the money was decided on an annual basis, so I did not count on it. It did _not_ affect my payments--I still had to pay my monthly loan payment. All it did was decrease the amount of loan I owed.

In addition, it did not change any decisions about how to handle my loanst. I consolidated my federal loans years ago when there were popular programs with fixed low interest rates. I believe these programs do not exist anymore, or are different. In any case, I just had to show that the current consolidated loan originated from federal loans (e.g. Stafford, Perkins etc). It could not have originated from private loan from a bank.

Each program will have it's own guidelines, so you should check when you apply for jobs. There is never a guarantee that that money will be available from one budget year to another. It's part of how the federal budget works.