Student Loan Laws Now Encourage Public Service
One of my biggest concerns for Gen Y has been the rapidly escalating cost of attending college and the resulting huge student loan burden that they have. As a Gen X'er, when I graduated from college, my friends and I had some financial pressures too but ours were quite different. When we graduated, we knew that if we took jobs in low paying fields such as public service that we would have to live in apartments, probably have roommates, and drive old, inexpensive cars. Flash forward a generation. Gen Y's loans are often twice and sometimes four or even more times as large. I hear stories of students with loan balances so high that their take home pay from public service jobs would be less than their student loan payments. Students with loans that large can't afford to take those jobs, and that's a significant problem for society.
Thankfully, the recently enacted College Cost Reduction and Access Act provides an important incentive for students to enter public service. The law contains a section called the Public Service Loan Foregiveness program, which will forgive what could be tens of thousands of dollars of school debt per student. Under the law, public service is defined to include a wide range of fields such as public health, public education, working for a non-profit organization, serving in law enforcement, or working as a public-interest lawyer. The Department of Education needs to issue regulations to properly define exactly what fields qualify.
So how does this work? For those who work in qualifying fields, the balance of the student loan is forgiven after 120 monthly payments (10 years). If a student graduates with $100,000 in student loan debt and finds a public service job paying $40,000 with annual raises of three percent, the student would fall under the newly created Income Based Repayment program, which will allow her payments to be stretched out beyond the usual 10 years. The student would pay $309 to $403 per month so after the 10 years, they would have repaid $42,448 of the loan. Due to interest on the loan, the unpaid balance will be $125,552 assuming the current rate for federal Stafford loans remains at 6.8 percent.
Other goodies and not-so-goodies from the law are that the forgiven amount will apparently be treated as taxable income, so a decade out of school the student above will see an additional tax bill of about $40,000. Ouch. But for those taking out Stafford loans, the interest rate will fall to 3.4 from 6.8 percent by 2011. Yeah. And needy students will be able to borrow more as well. Pell Grant maximums will increase from $4,310 to $4,800 in 2008 to $5,000 in 2010 to $5,400 in 2012. Also good news is that students will be able to earn $6,000 in the 2012-13 year rather than today's $3,080 and still qualify and families earning $30,000 rather than today's $20,000 won't be expected to contribute to the educational costs of their children.
So is the new law perfect? No, but no law ever is. It is, however, a huge step in the right direction for the students and for those who are concerned about the ability of public service organizations to properly staff themselves moving forward.
Steven, interesting concept, no?
Here is the version from across the pond: Do Good 4 Debt [http://www.dogood4debt.com//index.php].
Somehow it sounds [and looks] more hip, better branded for the target audience than what I have been able to find in the U.S.
There is a lot that we can and should learn from our overseas friends. Another great example is cell phone text messaging (SMS). Although it has grown to become our second biggest product by revenue so we consider ourselves to be leaders in this area, we know that we have a lot to learn from job boards and other organizations in the U.K. and the rest of Europe as employers there make much more and better use of SMS for employment marketing than do American employers.
In 1979, when I was beginning college, the prime interest rate was 11.5 percent and student loans were at 3.4 percent -- or 70 percent below prime. Now, the prime rate is 5.25 percent yet student loans are 8.5 percent (and adjustable) -- or 57 percent above prime. What is going on?