New Government Program Pays Off Student Loans for Borrowers Who Enter Public Service

Mon Jul 21, 2008 11:48am EDT

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Student loan borrowers who commit to a decade of public service may see
the remaining balance on their federal student loans forgiven under the
government's new public-service loan forgiveness program.

    Borrowers who enter public-service fields such as law enforcement, public
education, or certain nonprofit work could have their remaining federal
student loan debt forgiven, provided they work full-time for 10 years in
an eligible public-service field and make 120 monthly payments on their
college loans during that time.

    To be eligible for the loan forgiveness program, borrowers must have taken
out student loans, parent PLUS loans, or a federal consolidation loan
through the Department of Education's federal Direct Loan Program.
Borrowers who took out their federal student loans from a private lender
through the Federal Family Education Loan Program (rather than directly
from the government through the Direct Loan Program) will have to
consolidate their FFELP student loans into the Direct Loan Program in
order to qualify for the loan forgiveness benefit.

    The public-service loan forgiveness program is a provision of the College
Cost Reduction and Access Act of 2007, which also increased federal grant
aid to needy students and was intended to provide student loan borrowers
with the incentive to consider and continue working in often low-paying
public-service fields.

    Borrowers will only be able to count payments made on their federal Direct
student loans after October 1, 2007, toward the 120-payment requirement.
FFELP borrowers who consolidate their FFELP college loans into a federal
Direct Consolidation Loan will only be able to count the payments they
make on their Direct Consolidation Loan toward their payment requirement.
Any payments made prior to October 1, 2007, or to any lender other than
the federal government won't count.

    The first batch of loan forgiveness payments, to be issued in 2017, will
cover any federal student loan balance, including principal and interest,
that remains after a borrower has made 10 years of payments, while working
full-time in a public-service field, under one of three possible student
loan repayment plans: the standard 10-year repayment plan, the
income-contingent repayment plan, or the income-based repayment plan,
which becomes available July 1, 2009, as another provision of the College
Cost Reduction and Access Act.

    Both the income-contingent and income-based repayment options allow
borrowers to make smaller monthly payments than what is typically required
under the standard repayment plan. For borrowers in other Direct Loan
repayment plans, only those payments they make that are at least equal to
the monthly payment amount that would be required under the standard
repayment plan will count toward the 120-payment requirement.

    Because the standard repayment plan positions borrowers to pay off their
student loan balance in 10 years -- the same period of public service
required before any student loan balance can be forgiven -- financial aid
experts are encouraging borrowers in low-paying public-service jobs who
are interested in the loan forgiveness program to look into their
eligibility for the income-contingent or income-based repayment plans.
Borrowers enrolled in the standard repayment plan throughout their
required 10-year service period may not have any student loan debt left
to be forgiven after 10 years.

    The fact that borrowers may have already paid off their student loans
before the loan forgiveness program can even go into effect is a flaw of
the program that could prove misleading to students, say government

    Diane Auer Jones, assistant secretary for postsecondary education for the
U.S. Department of Education, says students taking the program's benefits
into consideration as they plan their college financing strategy may end
up being disappointed.

    "Some students will see the program and take on more debt than they would
have otherwise," Auer Jones explains, "not realizing it is unlikely that
most of it will be forgiven."

    About NextStudent

    NextStudent, Federal Lender Code 834051, is dedicated to helping students
and their families find affordable ways to pay for college. NextStudent
offers one-on-one education finance counseling and has a portfolio of
highly competitive education finance products and services, including a
free online scholarship search engine, private student loans, and
information on federally guaranteed parent and student loans, student
loan consolidation programs, and college savings plans.

    For more information about NextStudent and its student loan programs,
please visit our website at


Philip J. Tannenbaum
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