A Boost for Those Burdened by Student Loan Debt

BALTIMORE Americans invest heavily in the future of the nation by providing loans to help put students through college. Yet the burden of that debt for many former students is so great that it interferes with investments they would like to make in a home, a family or even a good time now and then.

This is especially true for the public-spirited who are burdened by heavy debt. No one expects to get rich doing good, but getting paid enough to pay back Uncle Sam would be nice.

Now there are a couple of new programs that could make those debts much lighter. One of them is specifically designed to encourage young people to serve the public by working for federal, state or local governments, nonprofits or other public service employers.

Under the Public Service Loan Forgiveness Program, the Obama administration announced yesterday, people with student loans can have their debts erased after 10 years of public service. Let's say Dr. Feelgood graduates from medical school with a mountain of student loan debt. Her heart, and a little angel on one shoulder, tell her to work in a clinic serving a low-income community on tribal lands, but that little devil on her other shoulder says to become a plastic surgeon in Beverly Hills. And the little devil is holding her empty pocketbook as evidence to back his case.

If the doctor follows her heart and makes 120 payments -- one a month for 10 years -- on her student loan, Uncle Sam will tell her to forget the rest of the money she owes.

That's great, but for those 10 years she still will have huge monthly payments that could prevent her from buying a house or discourage her from starting a family.

That's where the Income-Based Repayment plan comes in.

Starting yesterday, Dr. Feelgood's monthly federal loan payments would be capped at an amount determined by her income and family size.

"With a daughter about to start college in the fall, I certainly appreciate how daunting college financing can be for students and families," said Rep. John Sarbanes (D-Md.), author of the loan forgiveness option. He announced the programs along with Office of Personnel Management Director John Berry during a news conference at Johns Hopkins University yesterday.

"Student loan debt can have a significant effect on career decisions, and I hope that this new law will allow college graduates to live by their dreams, not by their loans," Sarbanes said. ". . . This legislation helps ensure stability for student borrowers, allowing them to embark on careers in public service especially when our country needs public service employees the most. It does so by giving students and families more time and better conditions for repayment."

Using figures supplied by Sarbanes's office, here's how the programs could work in tandem:

Let's say Dr. Feelgood has $100,000 in federal student loan debt, at 6.8 percent interest, when she graduates. She didn't become a plastic surgeon for Hollywood stars, and her tribal community health clinic gig pays $40,000 a year, with annual increases of 5 percent.

Under a standard 10-year repayment plan, her monthly note would be $1,151. But with her income, the Income-Based Repayment program would drop that payment to $309. That amount would gradually rise along with her income, until year 10, the last year she would pay anything, her monthly payment would be $526.

A real life example is that of Robert Miller, a 30-year-old former Peace Corps volunteer in Haiti. When he found out about the program, he was just plain giddy. His $100,000 student loan debt from two years of graduate school is more than he made in the previous five years, he said after yesterday's news conference. He expects his monthly payment to drop to $220 from $850, and "the vast majority of my debt I'm not going to pay."

This program will definitely improve his lifestyle.

"There's something disheartening about being 30, with a graduate degree and five years of work experience and still living like you're an undergrad," he said.

July 2, 2009
By Joe Davidson
2009 The Washington Post Company