Q&A: Student loans and forgiveness

Dear Liz: I have a rather ugly student loan predicament. You mentioned “the possibility of forgiveness” in a recent column. I feel very strongly that I am deserving (if I dare use that word) of partial or full forgiveness of my undergraduate loans, although the loans from my graduate studies sting quite a bit too. I am not sure whom to contact to tell my story. Do I ask my lender, or do I contact the federal government education department? I get beyond frustrated talking to my lender, as they have employees who can only read from a script and can never help with particular issues.

Answer: You don’t win federal student loan forgiveness with an effective sob story. You get it by volunteering, working in a high-need area or following the relatively new rules for erasing remaining balances after many years of on-time payments. You also can get your federal (but not necessarily private) loans discharged if you’re totally and permanently disabled, you die or your school closes before you get your degree.

FinAid.org maintains a list of some of the forgiveness and stipend options available. People who teach full time in low-income districts, for example, can have up to $17,500 of their Stafford or PLUS loans forgiven under the National Defense Education Act. Forgiveness options exist for health workers and attorneys who serve high-need areas. Students in the Army National Guard may be eligible for its repayment program, which offers up to $10,000 for repaying student loans. AmeriCorps, the Peace Corps and Vista also have stipend programs for student debt repayment.

In addition, the federal Public Service Loan Forgiveness program promises any remaining federal student loan balances can be erased after 10 years of payments. Eligible public service jobs include employment with federal, state or local governments or not-for-profit organizations designated as tax-exempt by the IRS. You can find more information about this program at the U.S. Department of Education’s Federal Student Aid site.

Even if you work in the private sector, you can qualify for forgiveness after 20 to 25 years of on-time payments, depending on when you incurred the debt. Again, see the education department’s site for details.

If you’re finding your payments onerous, you may qualify for the “Pay as You Earn” or other federal income-based repayment plans. If you have private student loans, though, you have far fewer options and consumer protections. You may want to visit the Student Loan Borrower Assistance site run by the National Consumer Law Center to learn more about strategies for coping with this debt.

Student loans can pay off with nursing degree

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.

Public service may winnow student loan debt

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.