Today’s students are no strangers to debt. With a collective debt of more than $1 trillion, the idea of repaying this debt can be daunting. Though calls for student debt relief abound and change may be just around the corner, there are programs that can help you right away.
Three different types of educational debt relief can ease the burden of repayment:
- Income-driven repayment plans, such as Income-Based Repayment (IBR), which lower monthly loan payments based on your income.
- Forgiveness programs, the broadest of which is Public Service Loan Forgiveness (PSLF). PSLF allows forgiveness on Federal Direct Loans after 120 qualifying payments if you work full-time in qualifying public service employment (employment in government and 501(c)(3) nonprofits count).
- Loan Repayment Assistance Programs (LRAPs), which provide funds to help make payments on educational loans.
Both Income-Based Repayment and Public Service Loan Forgiveness can provide significant relief for those who work in public service by allowing you to make lower monthly payments on your federal loans and achieve total forgiveness of those loans after ten years.
- If you have $25,000 in federal loan debt and make $30,000 per year, your monthly payment under a standard 10-year repayment plan would be $288). Under IBR, your payment would be $166. If your income increases, the amount you pay would too. But as long as you have a partial financial hardship it will be capped at 15 percent of your income. For example, if you receive 3 percent annual raises over 10 years, the amount you pay in year 10 would be $216 per month (still lower than a 10-year plan).
- Under this scenario, over 10 years, you would pay approximately $22,776 and if you qualify for PSLF, the government would forgive what’s left: $17,291.
But even if you aren’t planning to work in public service, IBR can still help lower your monthly payments. Providing you demonstrate a “partial financial hardship” IBR is available to anyone with federal government loans and offers total forgiveness on any balances that remain after 25 years.
If you are thinking of going to graduate or professional school and will need to take out loans, the numbers – and relief – can add up.
Consider “Dara Defender”. Dara graduates from law school with $120,000 in federal loans and takes a position as a public defender with a starting salary of $45,000 annually.
- Under a standard ten-year repayment program, Dara will pay $165,716 over ten years and is required to pay $1,381 monthly regardless of her income; this is more than half her monthly income. Under a 30-year repayment program, her monthly payments would be $782 and total $281,632 over 30 years.
However, Dara is in control because she knows about IBR and PSLF. She enrolls in IBR right after graduation.
- In her first year, Dara’s payments are $353 per month (less than half than what she would pay under a 30-year plan). As she receives annual raises of 3 percent, her payments gradually rise. In 10 years, her monthly payments are $461.
- Dara has remained in public services and after making 120 payments, she qualifies for PSLF. She has paid $48,570 (a little over one-third of the original principal) over ten years, and the federal government forgives $151,133, the balance of the principal and the interest left on her loans!
What if Dara doesn’t qualify for PSLF? Here’s a look at how IBR can still help:
- Dara leaves public service after seven years and begins to earn $80,000 per year. With 3 percent annual raises, in year 25 she will make $132,228 and pay $1,227 monthly (still less than a ten-year repayment plan).
- Dara will pay $241,064 over 25 years, and the government will forgive $43,405.
IBR and PSLF can make a huge difference. There are also special forgiveness provisions for Federal Perkins Loans and for teacher loan forgiveness on Stafford Loans.
Loan Repayment Assistance Programs (LRAP’s) can also help you manage educational debt and are available from a variety of sources. For example, the American Federation of Teachers has a searchable funding database, the National Health Service Corps helps fund State Loan Repayment Programs, and the Veterinary Medicine Loan Repayment Program offers loan forgiveness to veterinarians. Many law schools and state bar associations also provide LRAPs.
Because they provide funds to help you make payments on your loans, LRAPs are valuable on their own. In a perfect scenario, you would qualify for low monthly payments under IBR and use LRAP funds to make these payments while working in a qualifying public service position, allowing you to earn PSLF – all without using your own limited income!
This is only a brief description of how these programs work and how you can qualify. Equal Justice Works provides free educational debt relief webinars every month to help you learn more. You can view our schedule and register for the session that fits your needs on our website. You can also download our Educational Debt Manual to help you manage your student debt.
Radhika Singh Miller is a program manager for Educational Debt Relief and Outreach at Equal Justice Works. In 2008, she served on the Student Loans Team in the Negotiated Rulemaking for the College Cost Reduction and Access Act (CCRAA) and has extensive knowledge of this landmark educational debt relief legislation. Radhika graduated from Loyola Law School Los Angeles. Prior to joining Equal Justice Works, she was a staff attorney at the Partnership for Civil Justice, focusing on constitutional and civil rights litigation and advocacy.