Student Loan Programs Offer Income-Based Repayment and Debt Forgiveness
Monday, July 20, 2009
Suzie Dundas is at that stage of life when student loans loom larger than car leases or electricity bills. The $390 monthly payments seem to stretch into perpetuity. They are her largest monthly obligation aside from her rent, which Dundas has decided she can no longer afford. She is about to move back in with her parents.
Dundas, 23, is a new graduate entering a stricken job market with a master's degree, $30,000 in debt and far less earning potential than she expected when she borrowed the money. She works part time for the State Department.
"When I get paid, I think, 'All right, I have $500,' " she said. "But then I remember I have huge loans, and it's really just, 'All right, I have negative $29,500.' And then I go eat ramen for dinner."
This summer brings a measure of relief. Starting July 1, student borrowers can cap their monthly payments at a modest sum determined by income and family size. A second initiative, the Public Service Loan Forgiveness Program, will erase student debt entirely after 10 years for graduates who work for government or various nonprofit organizations.
Together, the programs amount to "the broadest and most expansive set of provisions we've ever had" to ease student debt, said Terry Hartle, senior vice president of the American Council on Education, an association of college administrators based in the District.
"It's huge for students," said Carmen Berkley, president of the United States Student Association, an advocacy group in the District. "You put somebody in a situation where they're not making too much money, and they're making $200 to $300 in monthly payments, and you're setting them up for failure."
Berkley graduated from the University of Pittsburgh two years ago with $80,000 in loans and, as a 24-year-old nonprofit leader, is "definitely not making enough to make my $800 to $900 payments."
Authors of the legislation cannot predict how many of the nation's 30 million student borrowers might qualify. Income-based repayment is available to borrowers with any federally guaranteed loan. Loan forgiveness is open only to those with direct federal loans. Neither program applies to private loans, a smaller but critical share of student aid.
Help might be coming for new borrowers, as well. On Tuesday, a House committee takes up the Student Aid and Fiscal Responsibility Act, which proposes to expand federal lending and simplify the application process.
Student borrowing has risen sharply in recent years to keep pace with spiraling tuition. Total education lending has more than doubled in the past decade, in inflation-adjusted dollars, from $41 billion in the 1997-98 academic year to $85 billion in 2007-08, according to the nonprofit College Board. The average borrower leaves college owing more than $22,000.
"The reality is that students are relying on loans to pay for college," said Chris Lindstrom, higher-education program director at U.S. PIRG, a public interest advocacy group based in the District. The share of students graduating in debt has risen from less than one-third in the early 1990s to about two-thirds today, she said.
Dundas amassed her debt at the University of Maryland and George Washington University, where she received a master's in media and public affairs this spring.