When I started college, I started with a scholarship (for track) and a grant. The money from these two combined got me through one semester. After that, my mother and I were informed through my college's financial aid office that we would have to take out a student loan. I'm sure this is something that every parent and perspective student goes through.
I was particularly struck by President Obama's State of the Union address last week when he said that a person shouldn't have to go broke just because he or she attempted to get an education. I finished school in 1981... my final student loan (I had three) wasn't completely paid off until 1989, right before I got married. My wife-to-be helped me pay it off. It would not have been a good look to go into a marriage in debt.
Paying off a student loan probably keeps a lot of people from moving ahead economically. Even the most conscientious people (of whom I was definitely not one of) will tend to fall behind in payments and this can effect your credit. Of course, if you were like me in my twenties, you probably wouldn't have cared. I owned nothing... no house, no car, nothing. In my thirties, it was different. I wanted to have a house and a car. Since my name was not Micheal and I didn't have four brothers that sang, those things were going to take credit being extended to me, which is why it was a good that, although I had some late and missed payments, I got those pesky student loans out of the way before I got started on my way into real adulthood.
A new program links payments on federal student loans to income and forgives balances after 25 years. Those working in public service could have their debts erased after 10 years. This sure would have helped me.
As graduates struggle to find jobs during this worst economic crisis of a lifetime, an adviser to the Secretary of Education expects a rise in the default rate on student loans, which cannot be easily renegotiated or discharged in bankruptcy, but a provision of the College Cost Reduction and Access Act of 2007 that reduces monthly payments for hundreds of thousands of borrowers who qualify for the new Income-Based Repayment (IBR) plan took effect July 1, 2009.
Borrowers who work in certain public service jobs could also have the balance of their loan erased after making qualifying payments for 10 years. Supposedly, this costs the government nothing, since it will now change the way it subsidizes student-loan lenders. So, will your student loan be bailed out? In a word, maybe.
At the very least, the IBR plan will lower the monthly payments of people who accumulated significant federal student loan debt but don't have the income to make the payments on the standard 10-year repayment plan. This relief may reach as many as 1 million people, according to the Project on Student Debt. And, despite lower payments, the former students won't be paying off their loans indefinitely because any remaining balance will be forgiven after payments are made for 25 years. Wow! I had mine paid in eight years so it wouldn't have included me anyway but it would have been nice to know.
The news is even more promising for people working in public service jobs... government employees, teachers in public schools and universities, workers at public hospitals, and anyone working for a 501(c)(3) nonprofit would qualify. Anyone working in a qualifying job who borrowed from the Direct Loan Program is eligible for loan forgiveness after 10 years, down from 25. This definitely would have effected me since I work for a non-profit.
To qualify for forgiveness, borrowers who work in a public-interest position must either have an existing Direct Loan or consolidate a federal loan with a private lender into the Direct Loan Program and make 120 payments after Oct. 1, 2007. The payments, which do not have to be consecutive, can be made while at different eligible positions and must be made on the income-based or standard repayment plans.
At this point, the burden is on borrowers to document where they were working during their repayment period. The Department of Education is planning to develop a more definitive system to confirm eligibility, but right now borrowers should keep pay stubs and tax documents that verify their work history.
IBR and public-loan forgiveness won't be the best options for every borrower. Some borrowers, those able to make higher monthly payments, would be better served by sticking with a traditional payment plan to avoid accruing years of additional interest. Graduates who financed their education with private loans are ineligible entirely. Bummer!
But, for an MBA grad who borrowed $150,000 while planning to be an investment banker but ended up in government service (i.e. mailman), the IBR will result in payments that are affordable on a civil servant salary.
And, that is certainly good news to know. When I came out of college in the 1980s, I had nothing good to know.
I was particularly struck by President Obama's State of the Union address last week when he said that a person shouldn't have to go broke just because he or she attempted to get an education. I finished school in 1981... my final student loan (I had three) wasn't completely paid off until 1989, right before I got married. My wife-to-be helped me pay it off. It would not have been a good look to go into a marriage in debt.
Paying off a student loan probably keeps a lot of people from moving ahead economically. Even the most conscientious people (of whom I was definitely not one of) will tend to fall behind in payments and this can effect your credit. Of course, if you were like me in my twenties, you probably wouldn't have cared. I owned nothing... no house, no car, nothing. In my thirties, it was different. I wanted to have a house and a car. Since my name was not Micheal and I didn't have four brothers that sang, those things were going to take credit being extended to me, which is why it was a good that, although I had some late and missed payments, I got those pesky student loans out of the way before I got started on my way into real adulthood.
A new program links payments on federal student loans to income and forgives balances after 25 years. Those working in public service could have their debts erased after 10 years. This sure would have helped me.
As graduates struggle to find jobs during this worst economic crisis of a lifetime, an adviser to the Secretary of Education expects a rise in the default rate on student loans, which cannot be easily renegotiated or discharged in bankruptcy, but a provision of the College Cost Reduction and Access Act of 2007 that reduces monthly payments for hundreds of thousands of borrowers who qualify for the new Income-Based Repayment (IBR) plan took effect July 1, 2009.
Borrowers who work in certain public service jobs could also have the balance of their loan erased after making qualifying payments for 10 years. Supposedly, this costs the government nothing, since it will now change the way it subsidizes student-loan lenders. So, will your student loan be bailed out? In a word, maybe.
At the very least, the IBR plan will lower the monthly payments of people who accumulated significant federal student loan debt but don't have the income to make the payments on the standard 10-year repayment plan. This relief may reach as many as 1 million people, according to the Project on Student Debt. And, despite lower payments, the former students won't be paying off their loans indefinitely because any remaining balance will be forgiven after payments are made for 25 years. Wow! I had mine paid in eight years so it wouldn't have included me anyway but it would have been nice to know.
The news is even more promising for people working in public service jobs... government employees, teachers in public schools and universities, workers at public hospitals, and anyone working for a 501(c)(3) nonprofit would qualify. Anyone working in a qualifying job who borrowed from the Direct Loan Program is eligible for loan forgiveness after 10 years, down from 25. This definitely would have effected me since I work for a non-profit.
To qualify for forgiveness, borrowers who work in a public-interest position must either have an existing Direct Loan or consolidate a federal loan with a private lender into the Direct Loan Program and make 120 payments after Oct. 1, 2007. The payments, which do not have to be consecutive, can be made while at different eligible positions and must be made on the income-based or standard repayment plans.
At this point, the burden is on borrowers to document where they were working during their repayment period. The Department of Education is planning to develop a more definitive system to confirm eligibility, but right now borrowers should keep pay stubs and tax documents that verify their work history.
IBR and public-loan forgiveness won't be the best options for every borrower. Some borrowers, those able to make higher monthly payments, would be better served by sticking with a traditional payment plan to avoid accruing years of additional interest. Graduates who financed their education with private loans are ineligible entirely. Bummer!
But, for an MBA grad who borrowed $150,000 while planning to be an investment banker but ended up in government service (i.e. mailman), the IBR will result in payments that are affordable on a civil servant salary.
And, that is certainly good news to know. When I came out of college in the 1980s, I had nothing good to know.
3 comments:
This is good news. Banks should not make profits from education loans. I believe that it is the job of government to provide for the people. The government was making student loans directly, then banks jumped in for profits. Our elected officials "served up the people" to be used by banks to make money. President Obama is standing on his principles and acting in the best interest of students and their families.
(I wonder how the Republicans are going to spin this into socialism/communism?)
Thanks for breaking it down, Keith, I've been meaning to read up on this.
Good to know considering I still have loans to pay on and I will for a long time to come.
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