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Lifelines in the Student Loan Sea
Programs Offer Income-Based Repayment and Debt Forgiveness

By Daniel de Vise
Washington Post Staff Writer
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.

"My thought process, in retrospect, was rather naïve," she said. "Because I had a master's, I thought I'd come out earning $40,000 to $50,000 a year, because that's what people were telling me. It's a funny joke now."

Her part-time job barely covers her loan payments, let alone the $700 rent she was paying in College Park. She will soon return to her family home in Poolesville. Then she'll begin a two-hour daily commute to Foggy Bottom by car, Metro and foot.

Dundas has applied for 140 other jobs to supplement her State Department income and has been turned down at every one, denied even a chance to wait tables at Applebee's.

"I have a master's degree, I interned on Capitol Hill, I helped my professor write an encyclopedia, I speak two languages, I had a 3.7 GPA and I can't find more than a part-time job," she said.

Under income-based repayment, her payments could drop to zero. The law caps monthly payments at 15 percent of a borrower's "discretionary" income, all earnings above 150 percent of the poverty line. At about $15,000 a year, Dundas has no discretionary income. She learned this by running figures through a calculator at IBRinfo.org, set up by the nonprofit Project on Student Debt.

That is not to say Dundas's debt would go away. It would remain, and continue to accrue interest, until she made enough to resume payments. The program forgives lingering debt after 25 years, a lifetime in the student-lending world.

But should she enter full-time government employment, Dundas would qualify for loan forgiveness, her federal debt erased after 10 years. Both programs were enacted in 2007 as part of the College Cost Reduction and Access Act. Graduates interested in payment caps can contact their lenders directly. There is no formal application yet for the loan forgiveness program, whose 10-year clock began ticking in 2007.

The programs won't necessarily help those who have borrowed the most. Students tend to load up on private debt after borrowing all they can in federal loans, which are subject to lending limits.

For instance, they won't help Mikaela Rossman Clark, 30, who finished law school at the University of Maryland in 2006 with $90,000 in private loans and $30,000 in federal loans.

Rossman Clark "did all of law school in loans, with the anticipation, of course, that I would go to a big firm afterwards," she said. Instead, she went to a small firm, near her Calvert County home, after she and her husband made "some quality-of-life decisions." They had a child. Then, last January, the firm stopped paying a straight salary and instead offered 30 percent of what she billed clients, which meant less money in leaner times.

"Financially, it made more sense for me to stay home with my son," she said.

The new loan programs might prove more useful to people who are "being squeezed out of socially valuable but lower-paying careers, like teaching and social work," said Lindstrom, of U.S. PIRG.

Take Andrew Merki. The La Plata resident entered the University of Indiana two years ago to be a business major, "with some plan of making a good salary" upon graduation. Instead, he'll graduate in 2011 with a newfound passion for public service -- and $70,000 or $80,000 in debt. He's volunteering at a Charles County shelter this summer and has launched a PIRG affiliate at his university.

"You have a vision in your mind to go out and change the world," he said. "At the same time, there's the harsh reality that you've got thousands and thousands in loans to repay. As much as you'd like the decision to be based on values and ideals, it comes down to money a lot of the time."

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