college

Student loan forgiveness programs in peril

New Hampshire isn't the only one rolling out new forgiveness funding. According to Studentaid.ed.gov, this past July the U.S. government introduced a forgiveness plan aimed at public service workers who land national or local government positions, jobs with nonprofit agencies or full-time positions with Peace Corps or AmeriCorps. Public Service Loan Forgiveness only applies to federal Stafford, Grad PLUS or Direct consolidation loans. To qualify, students must hold a public service job and make payments on their loans for a minimum of 10 years starting after Oct. 1, 2007, after which the government will forgive any remaining debt.

Beginning July 2009, low-wage public service employees receive an additional boost through the government's new income-based repayment plan, which caps monthly loan payments at 15 percent of a borrower's discretionary income, defined as any earnings above 150 percent of the poverty line. Borrowers who earn less than 150 percent of the poverty line -- approximately $16,000 a year -- won't make any loan payments, while those who earn just over the line will have significantly reduced bills that will disappear entirely after 10 years on the job.

"Students need to know that even though some loan forgiveness programs are shutting down, there are still lots of options out there," says Berube.

Students looking for a new forgiveness program to pick up their loan tab can start the search by contacting their lender, professional organizations in their field or by checking out mappingyourfuture.org and finaid.org.

Assume the debt

"If students are stuck with a loan forgiveness bill, their only option is to pay that debt," says Certified Financial Planner Mickey Cargile of WNB Private Client Services in Midland, Texas. "It's unfortunate, but being mad about it doesn't fix the issue. We have to step up and take the proper action."

Cargile advises students who are dropped from their forgiveness program to immediately contact their lender and let them know the situation. While lenders can't eliminate debt, they can work with borrowers to negotiate reasonable payment plans. Those that simply can't pay their surprise debt may be able to lower or postpone payments until they've created a backup plan, says Keith New of the Pennsylvania Higher Education Assistance Agency.

"There are deferment options, forbearance options and students can consolidate their loans and lock them in at a lower interest rate," says New. "If students encounter any problems paying back their loans, come to us. We can help."

In addition to the income-based repayment plan, the Department of Education reports that the U.S. government also offers extended repayment options that spread the debt over a longer period of time (up to 30 years) as well as graduated repayment plans that allow students to pay interest only for a few years, then slowly work their way up to full payments. Students who need extra time to come up with a financial plan B can also defer federal loan payments for up to three years or place private loans in forbearance for up to one year. Before taking the latter option, borrowers should know that when in forbearance, interest capitalizes and is added back into the balance of the loan.

Bankrate's story, "What to do when you can't pay student loans," explains the options in more detail.

Whatever plan you choose, New reminds students to tackle the situation head-on and to always stay in contact with the lender.

"Some people have a tendency to run away from trouble, and when you're talking about financial management, we ask them to run to us," he says. "We'll work with them to help them stay on a good financial track."

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