Students who believe that the right postgraduate job will make their education loans disappear may have another thing coming. If they expect that tenure at a public service job will eradicate all or a portion of their student debt -- as is customary with loan forgiveness programs -- they could well be disappointed.
With state budgets slashed, endowments taking a hit and businesses crumbling, loan cancellation and public service loan forgiveness programs are also in jeopardy. While certain organizations have cut funding for those already enrolled, others are imposing harsher income restrictions, stricter caps on the amount of forgiveness available or suspending new enrollment.
Here's how to sidestep a canceled program or deal with it if it happens.
What to do:
- Understand the risk.
- Read the fine print.
- Find a new backer.
- Assume the debt.
Understand the riskJoni Finney, a professor in the University of Pennsylvania's Graduate School of Education, says that those eyeing loan forgiveness should know that not all programs are made equal.
"Programs at the state level are vulnerable since budgets are under such duress right now," she says. "Big programs like the National Institutes of Health and the National Science Foundation are a high national priority and are safer than smaller programs."
While risk levels vary wildly among privately funded forgiveness plans, Finney says that federally funded programs through such organizations as AmeriCorps, Teach for America and the U.S. military are likely the safest bets. Students who choose state, school or privately funded programs may want to research back-up forgiveness plans just in case and all students eyeing forgiveness programs should consider the possibility that they could wind up footing the bill.
"Any time you take out a loan, you should assume that you will have to pay it back," says Finney. "If it's forgiven, that's wonderful, but you have to understand the risk."
Read the fine printWhen the student loan guarantor, the Pennsylvania Higher Education Assistance Agency, ended their Armed Forces Loan Forgiveness Program last year, those who assumed they would receive forgiveness funds the following year were disappointed.
"We provided up to $2,500 in loan forgiveness, but we never promised students that it would continue year after year," says communications director Keith New. "We only promised students that we could guarantee funds one academic year at a time."
While certain plans like Georgetown Law Center's Loan Repayment Assistance Program are guaranteed by the school, the majority are not, meaning students could wind up with a boatload of debt they hadn't anticipated paying. Before signing onto a forgiveness program, students need to read the specifics and be prepared if the program isn't guaranteed, says New.
Paul Mahoney, dean of the University of Virginia School of Law in Charlottesville, Va., one of the only organizations in the country that will expand its loan forgiveness program next year, urges students to also research the source of the forgiveness funding.
"Students should ask about the school's level of commitment to the (forgiveness) program and whether there is a specific endowment set aside for it and that's it or whether the school is committed to finding additional sources of funding to meet its commitments (should funding drop)," he says.
Find a new backerVictims of canceled loan cancellation have two choices -- pay the debt or find someone who will. The good news is that plenty of agencies across the country are willing to do just that.
"Certain states are also offering new programs," says Tori Berube, college outreach manager for the New Hampshire Higher Education Loan Corp., a student lender and guarantor agency that recently suspended its loan forgiveness program for teachers.
"In New Hampshire we just started a Stay Work Play incentive program where students can have up to $8,000 in (in-state educational) loans forgiven if they work for certain New Hampshire employers for one to four years."