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federal student loans

Student loans can pay off with nursing degree

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Dear Liz: I am about to begin graduate school to get my master’s degree in nursing to eventually become an advanced registered nurse practitioner. I have Googled scholarships, grants, fellowships, and am coming up empty-handed. I am fearfully looking at student loans to finance my degree (it would be about $34,000). I am appalled at the rates on federal student loans, and private school loans or just personal private loans are even worse. Are there any other options that I haven’t discovered? I don’t have any school debt to date, so this is all very daunting.

Answer: Let’s start with the good news: Your education should pay off. Advanced registered nurse practitioners earn a median of $86,625, according to the salary tracking site Payscale. That compares with a median of $55,311 for a registered nurse. There are no guarantees in education, any more than there are in life, but you should be able to recoup the cost of your education fairly quickly.

To find scholarships, you need to know where to look. One place to start is the Fastweb database, which tracks scholarships, grants and other financial aid programs. Fastweb lists the National Student Nurses Assn., the American Assn. of Colleges of Nursing and a variety of smaller programs, many of which are school-specific, publisher Mark Kantrowitz said. If you’re willing to serve in a high-need area, you also can check out HRSA Nurse Corps Scholarship (at http://www.hrsa.gov/loanscholarships/scholarships/nursing/). The ROTC also offers scholarships.

“Many employers of nurses provide signing bonuses or loan repayment assistance programs to help new nurses repay their student loans, since nurses remain in demand,” Kantrowitz noted.

You’re smart to be cautious about education debt, since too many people have overdosed on student loans. However, student loans in moderation can help you get ahead financially if you’re borrowing for the right education.

Since there’s strong demand in your field and excellent pay, you shouldn’t shy away from federal student loans, which offer fixed interest rates and a number of consumer protections, including forbearance and deferral in the event you become unemployed. You would be borrowing far less than you’re likely to make the first year after you graduate, so your payments shouldn’t be burdensome. If you decide to pursue a career in public health or work for a nonprofit, you could qualify for federal student loan forgiveness after 10 years.

“Compassionate review” may lead to student loan discharge

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Dear Liz: We have a family member who recently was approved by Social Security for a complete disability claim. This person will never work again but has an outstanding student loan. The lender has a formal mechanism to apply for loan forgiveness, but is refusing to accept medical documentation of the disability. What appeal process is there and how can we force them to act? Do we need to retain legal counsel and incur additional expense to enforce a legal process and achieve loan forgiveness?

Answer: Federal student loans offer a “total and permanent disability discharge” that forgives outstanding education debt. You can find the rules and an application at DisabilityDischarge.com.

The rules for private student loans, however, vary by lender. Four lenders — Sallie Mae, New York Higher Education Services Corp., Discover and Wells Fargo — offer a discharge for total and permanent disability that is similar to the federal one, said Mark Kantrowitz, publisher of the FinAid.org and FastWeb.com financial aid sites. The Sallie Mae discharge is also provided on loans made through lenders that market the Sallie Mae loans, such as Commerce Bank, Fifth Third Bank and Regions Bank, Kantrowitz said.

Other lenders do not offer such a discharge, but all have a compassionate review process for their private student loans, he said.

“Borrowers in a difficult financial situation, or their family or other representatives, should contact the lender that holds the loan directly,” Kantrowitz said. “The call center staff are not always familiar with the compassionate review process.”

Lenders are generally more likely to cancel some or all of the debt, or at least reduce the interest rate, in a situation that permanently affects the borrower’s ability to repay, Kantrowitz said. They are less likely to make an adjustment when the loan was cosigned and the cosigner is capable of repaying the debt.

“But it varies,” Kantrowitz said. “I’ve seen some cases in which the borrower was military and killed in action where the lender forgave the loans even though the cosigners were capable of repaying the debt. Another example involved a mother whose daughter dropped dead on an athletic field and the mother’s anguish was palpable in the letter to the lender.”

Debt cancellation comes with another issue: taxes. Forgiven debt is typically treated as taxable income by the IRS. Your family member may be able to avoid the taxes if he or she is insolvent, but a tax professional should be consulted.

Government recoups defaulted student loan debt

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Dear Liz: I read your response to the person questioning the rationale behind taxpayer-supported federal student loans. Your response was well written, but do you have any information about how much money is owed to the government for student loans and what percentage of all the loans are actually paid back in full? You mentioned that the government can garnish wages and Social Security checks and seize tax refunds, but does the government follow through and hold these people accountable? Does the government have personnel to do this or is this just a threat?

Answer: Millions of unhappy student loan borrowers can assure you the government’s considerable powers to collect defaulted student loans are much more than a threat. In addition to its own collection activities, the U.S. Department of Education also hires a number of private collection agencies to help recoup what’s owed.

As a result, the government collects more than 100 cents on every defaulted dollar once accumulated interest and penalties are included, according to the Education Department’s most recent report. On a net present value basis — when future collections are discounted back to today’s dollars — the government recovers about 80% of the defaulted debt.

Decades ago, it was possible to skip out on federal student loan debt without serious consequences. Public outrage over that fact led to much stronger collection efforts. That has resulted in the federal government recovering about $10 billion in defaulted student loan debt every year, said Mark Kantrowitz, publisher of the FinAid.org and FastWeb financial aid sites.

Student loans aren’t handouts

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Dear Liz: I am increasingly annoyed by the entitlement attitude of today’s students. Why should the taxpayers (me) pay to educate somebody else’s children? I remember when there was no such thing as a student loan. If I wanted to go to college and didn’t have the money for tuition, I delayed starting college until I had worked for a year and saved up the money. Many of my friends did this, as did I. Now these kids stand around with their hands out looking for somebody to bring them their education on a silver platter. I wish you would say something about this in your column.

Answer: Let’s start with the obvious, which is that an education costs a heck of a lot more than it did when you were in college.

The College Board reports that a student attending an in-state, four-year public university needs to budget an average of $22,261 to pay for the 2012-13 year. Which means the total cost to get an undergraduate degree would be about $90,000, assuming he or she can get all the required courses in four years (something that’s increasingly difficult because of state budget cuts in education).

Not to put too fine a point on it, but there aren’t many jobs these days that would enable someone (particularly someone without a college degree) to save the full cost of a college education in a single year. Even someone who started out with two years of community college would need to budget about $8,000 for each of those years, according to the College Board, and the total cost of a four-year degree would still be around $60,000. Some people would pay less if they got a lot of financial aid or lived at home, but any way you cut it, the tab is much, much higher than it has been in decades past.

Something else has changed since you were a student, and that’s the importance of having a college education if you want to have a decent financial life and remain in the middle class. In your day, people without college educations — even those without high school diplomas — could find well-paying jobs. Those jobs have increasingly been phased out by technology or they’ve gone overseas. The manufacturing and technical jobs that remain often require at least some post-secondary education. Having a college degree is what having a high school diploma used to be — an essential entry-level credential in many fields.

Our nation and our economy need educated workers if we’re to be competitive in a global economy. It also would help to have an expanding pool of well-paid workers to pay taxes toward things like roads, defense, police and fire protection and Social Security, from which you presumably benefit.

This is why governments promote post-secondary education with a relatively small amount of grants for the needy, and a relatively large amount of loans for everyone else. The first federal student loans were part of the National Defense Education Act of 1958; today, most students borrow at least some portion of their education costs.

You see, most kids (and their parents) aren’t standing around waiting for a handout. Most financial aid these days comes in the form of loans, which have to be paid back. These loans aren’t necessarily cheap — the rate on a Stafford student loan is 6.8%, while graduate and parent PLUS loans have 7.9% rates (plus a 4% origination fee that’s deducted from each disbursement).

If students or their parents default, the government can garnish their wages, seize their tax refunds, take a chunk of their Social Security checks and trash their credit. There is no statute of limitations on federal student loans and only rare relief in Bankruptcy Court, so borrowers can be pursued to their graves for what they owe.

Yes, many families overspend on education and overdose on student loans. The majority, however, graduate with a reasonable amount of debt (about $26,000 on average) that can be repaid from their now-higher earnings. Student loans aren’t a handout — they’re an investment in both the graduate and our economy.

Public service may winnow student loan debt

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Dear Liz: I am the single mother of four daughters, including one who has a serious heart condition that causes $10,000 to $30,000 in out-of-pocket medical expenses each year. These medical bills have caused me to file bankruptcy twice, but the bankruptcies have not wiped out my student loans.

I have qualified for minimum payments and deferments a couple of times but have been on a payment schedule the vast majority of the time. The interest grows faster than I can keep up, and I keep getting deeper into the hole. I am now 51 and have over $45,000 in student loans. After a year and a half of being unemployed, and depleting my retirement funds to pay for COBRA health coverage, I finally found a job — I am making $30,000 a year working for a nonprofit as a social worker — but I still can’t make any progress on these loans.

The only program I can find is one in which I have to make payments, no matter how little I have, for the next 10 years if I continue to work for only nonprofits. No one can explain to me why all the money I have already paid, plus only working for nonprofits, plus my volunteer service over the years, doesn’t count for something. I am holding my breath hoping you might have some suggestions to share.

Answer: The Public Service Loan Forgiveness Program you discovered is actually a fairly recent development. Before 2007, people in your situation didn’t have an option to have their balances erased.

It’s unfortunate you didn’t know about the program earlier, since if you’d signed up when it first became available you could be partway through your required payments by now and only a few years away from having your balance forgiven.

But better late than never. The program is ideal for those who have big federal student loan debts and small incomes. If you sign up for the “income-based repayment” option, your monthly payments will be limited to 15% of your “discretionary income,” defined as the amount of your income over 150% of the poverty line for your family. Since the poverty line for a family of five is $27,010 in 2012, your required monthly payment may well be zero. Even if your household is smaller, payments under the program typically are less than 10% of your gross income, said Mark Kantrowitz, publisher of the FinAid and Fastweb financial aid sites.

If you didn’t have a public service job, your required repayment period would be 25 years — so you are receiving some credit for your service. Public service jobs include, among others, those in public safety and law enforcement, military service, public health, public education, public interest legal services, social work in public or family service agencies and jobs at tax-exempt 501(c)(3) organizations. Government employees also are considered to have public service positions, although interestingly enough, time served as a member of Congress doesn’t count.

Selling home could ease student loan burden

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Dear Liz: Your answer to the parents with $200,000 in student loans for their daughters’ educations was interesting — and cautionary. I wonder, since they mentioned refinancing their home, why not explore using their equity by selling the home and renting?

Depending on the amount they have in the home, they might be able to fund more retirement as well as reduce the loan balance. Also depending on the size of the mortgage, they might be able to rent for the same monthly amount or less. Presumably, their house was big enough for four, but now they could “live well with less.” And be more flexible.

Answer: The writer did mention getting a new mortgage, but didn’t say whether it was a refinance or a modification, or whether the couple had any equity in the home. Although a conventional refinance requires considerable equity, a mortgage modification or a refinance made through the government’s HARP program would not require that they owe less than the house is worth.

If they do have equity, it would be worth considering using at least some of it to alleviate their debt burden and supplement their retirement funds. If they don’t have equity, selling the house might still be an option if they could substantially reduce their living costs. Given that their income plunged by more than half, they would be smart to cut their expenses as far as possible to free up money to save for retirement and pay their debts. Taking such a big step down in their lifestyle might be painful, but it’s often to better to do so now rather than risk being old and broke.