Student Loan Forgiveness: Actually, We Already Do That

Occupy Wall Street and Occupy Together are stirring up debate on political policies that could help the 99 Percent. One that keeps coming up is debt forgiveness, particularly student debt forgiveness.

Occupy Wall Street

 

The Occupy Wall Street/Occupy Together protesters—there’s a march on the Chicago Fed and Daley Plaza today at 4 pm, one of five (!) coinciding with the meetings of the Mortgage Banker Association and the Futures Industry Association—remain without official demands for now, but the idea I’ve seen floating around the most in response is debt forgiveness.

It’s the first of Mike Konczal’s three suggestions for Occupy Wall Street protestors, a central idea of protestor and anthropologist David Graeber (author of the new book Debt: The First 5,000 Years); student loan forgiveness is the subject of a stinging critique by economist Justin Wolfers at Freakonomics. Which makes sense: first mortgage debt drove the financial crisis, and now student loans are now the nation’s largest form of debt. As Konczal points out, student loan debt is the number one complaint on the We Are the 99% tumblr, outpacing both health care and unemployment, probably because it’s a problem for both the employed and the unemployed.

What I haven’t seen acknowledged much is this: we do forgive student loans, or at least we’re going to start doing it soon. Back in 2007 President Bush signed the College Cost Reduction and Access Act. Among many things, it has provisions for forgiving student loan debt if debtors are employed for ten years in a long list of fields in public service, fairly broadly defined:

Public service jobs include, among other positions, emergency management, government (excluding time served as a member of Congress), military service, public safety and law enforcement (police and fire), public health (including nurses, nurse practitioners, nurses in a clinical setting, and full-time professionals engaged in health care practitioner occupations and health care support occupations), public education, early childhood education (including licensed or regulated childcare, Head Start, and State-funded prekindergarten), social work in a public child or family service agency, public services for individuals with disabilities or the elderly, public interest legal services (including prosecutors, public defenders and legal advocacy on behalf of low-income communities at a nonprofit organization), public librarians, school librarians and other school-based services, and employees of tax exempt 501©(3) organizations. Full-time faculty at tribal colleges and universities, as well as faculty teaching in high-need subject areas and shortage areas (including nurse faculty, foreign language faculty, and part-time faculty at community colleges), also qualify.

It’s a great boon to public-interest lawyers like my wife; after 120 months of public-interest work, whatever’s left of her debt vanishes. Assuming she stays in qualifying fields, that’ll be tens of thousands of dollars, perhaps over $100,000. The bill was based in part on the work and advocacy of Georgetown Law prof Philip Schrag, who explained the purpose and function of the Act in an article for Hofstra Law Review.

Looking back on it through a recessionary lens, there are some odd aspects to it. It’s all or nothing: you get total forgiveness after 10 years of work, nothing if you don’t make it that long. There’s no accounting for spousal income, as far as I can tell. It’s very straightforward and simply meant to get people to work in public service. Unlike income-based repayment—after 25 years of which debts are forgiven—there’s not really any economic rationale at all.

I don’t remember hearing much pushback in 2007, which makes me think that there may be political room for debt forgiveness, broadly speaking. Complete forgiveness is a pie in the sky idea, but I can envision extensions of the philosophy behind the College Cost Reduction and Access Act: for example, reducing payments further for younger or more recent grads, or expanding ten-year forgiveness to other fields. Given recent history and the convergence of We are the 99 Percent and rising student loan debt, I can see this being one of the issues to move from Occupy Wall Street to actual legislation.

 

Photograph: Indofunk (CC by 2.0)

Share

comments
3 years ago
Posted by klynn13

Actually if you enroll in the public service loan forgiveness program, it will only forgive your Stafford loans after 120-monthly payments. If you had to take out more money that what was offered with Stafford loans (e.g. private loans) you still have those loans left over after the 10-year period. Additionally you have to specifically enroll in their program to qualify which is a fixed 6.8% loan program--obviously that's not an issue if you are able to commit to the full 10 years of public service but if you are unable to do this you are stuck with loans at an interest rate much higher than what the current interest rates are at 3.11%. Additionally your 10 years doesn't start until you have applied and been accepted into this program so if you think you've already got a couple years under your belt of payments, they don't count.

3 years ago
Posted by OliviaPidwell

The program is a bit more complicated. I believe it's not eligible to everyone who works in the public sector, only people who took out loans during certain time periods. Also, I think in order to be eligible, the borrower has to make the minimum payment on their loan(s) for 120 consecutive months, something that is challenging to many people who work in the public sector and make pretty low wages.

Student loan forgiveness is a start, as it could (would?) theoretically free up money for people to spend, which could (should?) entice businesses to hire more workers, but a larger issue is the cost of education. Why does it cost so much to go to school? Shouldn't we make it easier for everyone, not only people with good credit/padded bank accounts, to attend college?

3 years ago
Posted by Mark Kantrowitz

The comment by Olivia Pidwell contains several errors. Public service loan forgiveness is not restricted to students who borrowed during certain time periods. The program does require the loans to be in the Direct Loan program, but FFELP borrowers can consolidate their loans into the Direct Loan program at loanconsolidation.ed.gov even if they previously consolidated their loans in the FFELP program. Only payments made after 10/1/2007 count toward the 120-payment (10 year) requirement, and only after the loans are in the Direct Loan program, and only while working full-time in a public service job. Prior employment in a public service job doesn't count. The forgiveness is available only on a going forward basis; it is not retroactive. Also, repayment is restricted to either Standard 10-year repayment, income-contingent repayment or income-based repayment. Of these repayment plans, income-based repayment yields the lowest monthly payment. The monthly payment under income-based repayment is less than 10% of gross income for most borrowers and so should be affordable. (The actual figure is 15% of discretionary income, which is defined as the amount by which adjusted gross income exceeds 150% of the poverty line. If the borrower's income is less than 150% of the poverty line, their monthly payment is zero, and such a zero payment does count toward public service loan forgiveness.)

Also, an error in KLYNN13's post: Public service loan forgiveness is available to subsidized Stafford loans (3.4% fixed interest rate this year), unsubsidized Stafford loans (6.8% fixed interest rate this year) and Grad PLUS loans. It is not available for Parent PLUS loans or private student loans.

Generally speaking, borrowers who have total federal student loan debt that exceeds their salary will obtain a financial benefit from public service loan forgiveness. Some borrowers with less debt will also benefit, but the calculations are complicated so it is difficult to derive a precise rule of thumb that identifies all of the borrowers who will benefit.

Mark Kantrowitz
Publisher of Fastweb.com and FinAid.org

3 years ago
Posted by Lucas11

I think that the protesters are also angry about the mafia style student lending industry. It turns out out that student loans are classified with criminal fines and nearly all capitalistic mechanisms of consumer protection have been stripped from them.

3 years ago
Posted by Cornbread

Here's the deal. I had to go through a private company to get my fed student loan in addition to a large private loan. The slime ball loan company (Access Group), took my payments and quickly paid off my fed loan. Now I'm stuck with the large private loan where there is no debt forgiveness program (only debt forgiveness for fed loans). I also can't get rid of the loan in bankruptcy.

3 years ago
Posted by longshot7

What we need is legislation REMOVING student loan debt from the list of things not covered in filing bankruptcy. As well, college students need credit counseling BEFORE taking out these loans. When you apply for a home loan, the bank walks you step by step thru the repayment process so you know your rate and when things are due, etc. 18, 19, 20, & 21 yr old students (many of whom have never paid off a substantial loan in their lives) are not ready to understand what they are getting into. Never mind the private loans that are predatory loans at their best! The student loan racket is a big moneymaker and there is nothing out there to protect borrowers.

3 years ago
Posted by ande2994

Compare and contrast:

30-year-old woman loves designer clothing, fails to live within her means, racks up $1,000s in credit card debt and files bankruptcy. Forgiven.

18-year-old woman believes that education will help her achieve the American dream, takes loans to finance increasingly-expensive higher education, cannot find a job in her field despite years of being told that she should just do what she loves, and files for bankruptcy. No forgiveness.

What does that say about our society...?

3 years ago
Posted by coral

Who does one contact to take advantage of this program? Is there a telephone number I can call?

3 years ago
Posted by pony65

The public service program is FAR more complicated than portrayed here. You have to 1.) get a job at an approved site, then 2.) work many, many DIRECT SERVICE hours a week - even if your profession is one where "full time" direct service is less than 40 hours (e.g. mental health therapist).

Also, the employers at approved sites - especially in rural areas - pay a pittance. You can make more at McDonald's. I'm not exaggerating. The employer's efforts at being an approved site are minimal, but they somehow feel justified in paying professionals less than $20K a year.

And yes, a spouse's income is indeed considered when applying for IBR. This may be "just a blog," but do your homework already.

I agree with the others who point out that student loans should be forgiven in bankruptcy. Ande2994's compare/contrast is most certainly apt. I went into a field that required a 60 hour graduate program (with two internships).

Despite the grad school recruiter's rosy picture, there is NO money in human services - unless, of course, you're a lender for students borrowing to get that precious sheepskin drink coaster.

3 years ago
Posted by Radhika

I do not disagree with the calls for student debt relief.

However, while it is true that the PSLF program has limitations and more can be done, it can still be helpful for many people and, for that reason, is an important program. The economic consideration is that because public service jobs are historically lower-paying positions, the program allows people to dedicate themselves to long-term careers by easing the burden of their student debt.

Mark Kantrowitz's post above cleared up many of the errors in this stream. Just to clarify some things in PONY65's post (posted after Mark's detailed and informative post):

There is no "approved" site, full-time work at any government or 501(c)(3) nonprofit will count, as well as full-time work that falls within the definitions cited in the author's post. It is true that this is not all-encompassing and some who do great public interest work, for example, at 501(c)(4) organizations will not qualify. However, that does not mean the program is worthless for the many who will.

You do not need to be providing "DIRECT SERVICE," any full-time position at a qualifying organization will qualify. And full-time is defined as an annual average of 30 - not 40 - hours a week (or for a contractual period of not less than eight months, e.g. teachers, an average of 30 hours per week. If your employer requires more to be full-time, that is when you must work more than 30 hours per week.

It is precisely because public interest jobs pay less that this program exists - and works in conjunction with Income-Based Repayment, as Mark explained.

We are actually providing a free webinar to explain the programs tomorrow, Friday, Oct. 14 at 3 p.m. Learn more at www.equaljusticeworks.org

2 years ago
Posted by littleJ

To ease Occupy Wall Street movement, President Obama announced a new Student Loan Forgiveness plan. Who do you think should take the financial burden of higher education?

Vote or see What's on people's mind @octorama.com/desktop/display-1761

Submit your comment