As the economy slides and the job market continues to tank, many students have resigned themselves to a lifetime of debt. But there is hope for students who are facing decades of student loan payments.
Thanks to the College Cost Reduction and Access Act of 2007, the federal government will cancel the balance of any interest and principal due on any federal direct loan—including Direct Stafford, PLUS and Consolidation loans—as long as it’s not in default. Moreover, federal agencies such as the Department of Education also have partial loan forgiveness programs.
The only catch is that graduates will have to work in public service jobs such as law enforcement, social work and child care in order to qualify.
If you’re looking to make your payments more manageable in the long run, here are some options for you.
Option 1: Volunteer
The Peace Corps will cancel 15% of your Federal Perkins Loan for every year that you serve and AmeriCorps volunteers are eligible to receive a $4,725 award at the end of a 10 to 12 month stint in the service.
Eligibility: You must be a United States citizen, U.S. national or lawful permanent resident of the U.S. and at least 17 years old in order to Join AmeriCorps. Peace Corps volunteers have to be 18.
Savings: If you have $16,000 in Federal Perkins Loans, you can expect to pay $800 interest at the end of one year. The Peace Corps will cover 75% of your interest payment. However, if you join AmeriCorps, you can wipe out almost 30% of your entire loan at the end of one year.
Option 2: Teach
According to the Student Loan Network, students who become teachers in an elementary or secondary school that serves students from low-income families can have a portion of their Perkins Loan forgiven.
Through the National Defense Education Act, students can get as much as $5,000 in of their Federal Perkins Loan forgiven. Additionally, new teachers can also apply for the Department of Education’s Teacher Loan Forgiveness Program, which can erase as much as $17,500 in federal loan debt.
Eligibility: Teachers must work full time for five consecutive academic years in order to become eligible for both programs.
Savings: If you’re a teacher with $40,000 in federal loans, you could end up paying as much as $26,082 in interest. Although $18,000 in federal money is not enough to wipe your slate clean, you could eliminate as much as 69% of the interest payments on your loan if you’re willing to teach for five years.
Option 3: Enroll in a Professional Program
Many professional schools, such as the Yale University School of Law, and medical organizations such as the National Health Service Corps offer loan forgiveness programs to students who decide to serve the public interest. Plans such as the one offered through Yale are scaled according to income and the baseline is $60,000. For example, if an attorney working for a government agency has $105,000 in student debt and a household income of $70,000, they would only have to pay $2,500, or 25% of the amount above the $60,000 baseline. Another public defender with the same amount of debt and an income of $55, 000 would not be expected to make a contribution at all.
Medical students have a slightly better deal. If a doctor works as a primary care physician in an area in need of a general practitioner, such as Hazen, N.D., he or she will receive $25,000 for each year in the program. (Interested? Apply at the National Health Service web site.)
Eligibility: The National Health Service requires all applicants to be U.S. citizens who are employed as licensed medical practitioners for at least 40 hours per week. Lawyers have to be licensed by the American Bar Association.
The income requirements for loan forgiveness vary according to the school. Some, such as the Franklin Pierce Law Center in Concord, N.H., require applicants to make less than $45,000 a year, and Yale University Law School has a baseline of $60,000. Contact your financial aid office to find out the income requirement.
Savings: Depending on their income, attorneys could potentially reduce their monthly loan payments by more than half if they pursue a career in public interest law. Doctors can conceivably wipe out all of their loans if they continue to work for the National Health Service.
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