10/9/2013 3:30 PM ET|
Student loan forgiveness: What to know
Worried about how much you'll owe Uncle Sam after graduation? Loan forgiveness programs may help.
Two-thirds of students who receive bachelor's degrees leave college with debt in tow. Depending on the amount owed (the average among borrowers is $26,600), it can take decades to pay off the outstanding balance.
For help with paying down your student loans more aggressively, consider the many programs that reduce your debt in exchange for relocating to specific regions and/or providing needed services in underserved communities. From Kansas to Chad, and in fields from nursing to teaching, there are programs to help graduates slash college debt. But the programs aren’t always easy to get into -- nor easy to stick with. Here are nine things you should know:
1. There are two broad categories of loan-forgiveness programs. You can enroll in the federal government's Public Service Loan Forgiveness program and/or apply for a loan repayment assistance program (LRAP) run by an organization or state. Know the differences: Public Service Loan Forgiveness requires you to make ten years of monthly payments toward your loan via an income-based repayment plan while working in a qualified public-service job before the remaining balance will be canceled or "forgiven." To qualify for one of the income-based repayment plans, you must have high debt relative to your income.
An LRAP, in contrast, tends to require dedicated service to a specific organization for a relatively short period of time in exchange for a limited amount of loan forgiveness.
2. You can double-dip. You can join an LRAP such as AmeriCorps or the Peace Corps and receive loan-forgiveness benefits at the end of your program (after one year for AmeriCorps, two for the Peace Corps), and you can count your time as eligible employment toward the ten-year public-service requirement for the federal government's Public Service Loan Forgiveness.
3. Only federal loans are eligible for forgiveness in most of these programs. Few programs allow their money to go toward private loans.
4. You should apply early. Start assessing programs before the beginning of your senior year. Deadlines vary, but Teach for America accepts submissions through February 20, and the rolling application process for AmeriCorps takes about six months. The Peace Corps requires more records and medical clearance, so aim to submit your application seven to 12 months before you hope to start working.
5. It's a big commitment. In most of these programs, you'll spend two years working to serve the greater good -- teaching in Detroit's struggling schools, improving agricultural practices in Senegal or providing mental-health services in rural Minnesota. Some programs, such as AmeriCorps Vista and the Peace Corps, explicitly prohibit you from holding another job while you participate in the program. Usually, you'll have the option to extend your work in the program beyond the two-year term, which tends to reap even more loan-repayment help.
6. Yes, you'll earn a salary. In addition to the partial (or sometimes full) payoff of your loans, most LRAPs provide a small stipend (Teach for America is the highest, with a maximum salary of $51,000) and health benefits.
7. There’s no partial credit. If you don't fulfill the entire commitment, you won't earn any money toward paying off your student loans. You might even face penalties from employers such as the National Institutes of Health research program and Nurse Corps if you breach your contract. In 2010, 12.4% of TFA teachers left the program after the first year.
8. You'll pay taxes on the loan-forgiveness awards. AmeriCorps, for instance, awards a lump sum equal to the largest Pell Grant you could receive ($5,645 in 2013). You won't actually receive a check, but you can make payments toward your loan directly from your profile on the AmeriCorps Web site. You have seven years to apply the award. Any amount you use is considered taxable income that year. For example, a young adult in the 15% tax bracket who applies $5,645 in loan-forgiveness awards toward a loan will trigger $847 in taxes due the following spring.
9. You may not get accepted. Most programs accept only 15% to 30% of their applicants, with Teach for America and the Nurse Corps Scholarship Program taking even fewer candidates. Other programs aren't as restrictive: Kansas's Rural Opportunity Zones relocation program, for example, awards a maximum of $15,000 for living in one of 50 rural counties for five years and simply requests proof of a degree from an accredited college or university and an outstanding student-loan balance.
More from Kiplinger's Personal Finance magazine:
- 9 ways to reduce your student loan debt
- 10 worst college majors for your career
- 10 best cities for new grads
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Of course, there is always a budget for football...
hum, lets see were broke and cant afford to send flying planes to dead soldiers funerals but we can pay off student loans and renew aid to Egypt.
wake up America this is what the 47% that dont pay taxes and on the take voted for
Public Service Loan Forgiveness requires you to make ten years of monthly payments toward your loan via an income-based repayment plan while working in a qualified public-service job before the remaining balance will be canceled or "forgiven."
^That sounds almost impossible.
Most people will not qualify for these programs.
Universities shouldn't be adopting business models; government shouldn't be in the business of selling loans with variable rates; and banks shouldn't be loaning to people who don't have the ability to repay. Universities should actually focus on teaching, not collecting money for other amenities, covering up scandals, and buying the latest, but not the greatest machines.
The truth is no one should ever borrow money. If they don't have the money to pay the debt, how can they repay it back? If they have the money to pay the debt, then they shouldn't be borrowing ...
When even the head of the Department of Education smirks before a congressional committee when asked about what happens if students default and since bankruptcy cannot be declared, you know something smells fishy and something shady is happening.
With fiat money, debts can never be fully repaid as long as interest is owed on dollars borrowed through the Federal Reserve.
What good are all these degrees if no one is willing to hire people who have them?
I said back in 2008 that the next bubble would be student loans. The value of a degree has been inflated just as housing was at the time. Too many people with too many degrees that cost too much and are not worth their loan value. At that time I said the only way they would ever pay off that debt would be some sort of indentured servitude for the government. I was thinking military service but teaching in the inner city is a start.
We keep telling all our kids to go to college but that doesn't create jobs for anyone but colleges. The loans do however give the economy some growth to chew on to make us think all is well. It's just another manufactured bubble my friends and when it pops, all those kids will be working for the government.
I beg to differ. I KNOW PERSONALLY of one woman who is getting rid of 100% [in other words, ALL] of her student debt, by "teaching" English in a public high school in a small town in central Maine. Oh, BTW, she's ALSO getting PAID a FULL salary for "teaching", with full benefits. All she has to do is stay in this high school for five [YEAH THAT'S FIVE] lousy years. She won't even be 30 when her five years are up, and she'll be DEBT FREE. Want to bet that SOMEONE has some pull SOMEWHERE in the student loan program???
I know this for a fact, because I know her, and I know her parents. She was BRAGGING about one time at a gathering, and her parents told a few people in confidence, THAT IT WAS TRUE!!!!
Talk about f*cking disgusting!!!!
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