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Chapter X

Student Loans

THE LAST RESORT

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UPDATE:   The following changes affect the Federal Stafford Loan:  Dependent undergraduate students may borrow $5,500 as a freshman, ($3,500 subsidized/ $2,000 unsubsidized); $6,500 as a sophomore ($4,400 subsidized/ $2,000 unsubsidized); and $7,500 per year thereafter up to $31,000.  (You don’t need assets or credit. You can borrow the money regardless of past credit problems. Moreover, if your parents are unable to qualify for a parent loan, you can borrow an additional $23,000 in unsubsidized funds.)

             If a student elects to go on to graduate school, he or she could end up with $138,500 in student loan debt.  Health professionals are eligible to borrow up to $224,000, or a quarter of a million dollars in debt to start their practice!

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UPDATE:  The figures in the example below are based on unsubsidized" Stafford Loans, which means you either have to pay interest once a quarter or allow it to accrue and be added to your student loan when you graduate!

          *Rates change every July 1st. Maximum rate is 6.8 percent through 2013.
                                    ‡Payback and percentile figures are rounded.                          

UPDATE:   If students have not repaid 100% of their student loans after 20 years (240 monthly payments), the remaining debt will be forgiven. If the student works for 10 years in a public service profession such as social work or teaching and has successfully made 120 monthly loan payments, the remaining balance of his or her federal loan will be forgiven.  For details, see Reduction Act.

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Under special conditions, some students may be eligible for loan deferment. The loan payments may be deferred if:

• The borrower is pursuing at least a half time course of study
• The borrower is enrolled in a graduate fellowship program
• The borrower is disabled and in rehabilitation training.

Details for forbearance and deferment are available from the college financial aid office or by clicking onto Loan Deferment.

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The revised Teacher Forgiveness Program allows up to $17,500 of a student's expensive Stafford Loan to be cancelled. To be eligible, a borrower must first work as a full-time teacher for 5 consecutive years teaching math, science, special education, or working in low income or teacher shortage areas. During the 5-year period, the borrower is expected to repay his or her subsidized or unsubsidized loans in a normal manner. At the end of 5 years, the government will cancel up to $17,500 of the remaining balance. See details at Loan Forgiveness.  To determine if your teaching assignment falls within a teacher shortage area, see Teachers and scroll down to the middle of the opening page.

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What makes the Perkins Loan so popular is the 5 percent flat interest rate compared to the 6.8 percent for the Stafford Loan and 7.9 percent plus 4% origination fees for the PLUS. Based on the figures below, the monthly payment for a $5,000 Perkins Loan is only $53 with a total payback $6,364, or 27.3 percent of the original loan amount. 

                            YEARS           LOAN            RATE         P'MENT       INTEREST     TOTAL PAYBACK     PERCENTILE

The Perkins Loan is service-cancelable under the following conditions:  (See Perkins)   One hundred percent of the Federal Perkins Loan, including interest, may be canceled if the borrower is a full-time teacher in a math, science, foreign languages, bilingual education, special education, any other field of expertise where the state agency determines a shortage, or in a school system serving low-income students. For a complete listing of all teacher shortage areas within the U.S., log on Teachers and scroll down to the middle of the opening page..

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Still another opportunity for professional students is the National Health Service Corps Scholarship.   Participants must agree to work full-time for a period of 2 years at a public hospital, a rural health clinic, or a health facility with a critical shortage of nurses. Government programs change frequently. Interested students should check out National Health Service Corps, or call 800-638-0824.

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The U.S. Department of Health & Human Services offers participants repayment of qualified loans if they serve for a period of 2 years in a medically under served community as determined by the Department. Participants are offered a competitive salary plus the repayment of $25,000 in student loans each year for 2 years. Candidates may request an extension of 2 additional years for a repayment of up to $35,000 per year thereafter, plus a stipend equal to 39 percent of the loan to compensate for additional taxes. Total value: $120,000 plus tax stipend.  For up-to-date information, contact NHSC Loan Repayment Program online at Loan Repayment, or write 2070 Chain Bridge Road, Suite 450, Vienna, Virginia 22182, 800-221-9393.

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MED-SEND PROGRAM: Health care professionals who prefer to avoid government programs may wish to contact Project MedSend. This unique program is specifically designed to repay student loans owed by health care professionals while they serve as medical missionaries in medically under served areas.

Applicants must first be called to use their medical training for the spread of the Gospel, be under the authority of a recognized Christian mission organization and be within 18 months of leaving for a career as a medical missionary.  Applicants must also show fiscal responsibility and stewardship maturity, demonstrate a missionary lifestyle, and be in the process of paying off their student loans while serving as an Intern or in residency. In addition to the Student Loan Repayment Grant, Project MedSend also offers financial counseling to health care professionals concerning student borrowing. For more information, write Project MedSend at P.O. Box 1098, Orange, Connecticut 06470-7098, or call 203-891-8223 or online at MedSend.

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                AVOIDING STUDENT LOAN DEBT

STUDENT LOAN TRAP
"Avoid the student loan trap," notes author at Bankrate.com. Columnist, Lucy Lazarony, highlights a program where students compare financial aid packages received from 3 different schools with the help of an online cost calculator.

STUDENT ABUSE?
Students need to carefully consider the cost of any student loan offer. One student received a brochure offering her $25,000 for her graduate studies. The payback was $267 per month for 20 years, or a total of $64,171. The lender also acknowledged a loan of $120,000 at $1,262 per month for 20 years. That works out to be over $300,000, or 152.5 percent interest.

STUDENT LOAN REPAYMENT
If your loan is in default or nearing default, or if you simply want more information about repaying your student loan, check out the online brochure from the office of Student Assistance. For information on deferments and forbearance, see Loan Deferment.

LOW COST STAFFORD LOAN?
The interest rate on adjustable rate loans changes every year.  The current interest rate for new student loans is 6.8 percent.  But watch out!  Don't forget the 3 to 4 percent origination fee added on top of the 6.8 percent and deducted from each disbursement of funds. Until the Government eliminates the origination fees, the Stafford Loan can never be considered a  "low-cost" student loan.

INCREDIBLE LOAN PAYBACK PROGRAM
The Office of Personnel Management (OPM) in Washington reports an increase in the number of students taking advantage of their student loan payback.  Basically the program is used to recruit or retain highly qualified personnel for government agencies.  Each agency is authorized under 5 U.S. C. 5379 to offer the program to qualified employees, whether graduated or not.  The agencies are allowed to pay back $10,000 in student loans per year up to a maximum of $60,000. What's the catch?  First of all there is no guarantee that you will automatically qualify for the program.  The loan payback program is part of the up-front employment recruiting process that you negotiate.  Secondly, you must remain with the government for a minimum of 3 years.  If you leave ahead of that, you're required to reimburse OPM for the total amount of the loan payback.  Thirdly, the payback is taxable and the $10,000 will be taxed as ordinary income.  Make sure you get everything in writing.  For more information, click on Questions & Answers.

STUDENT LOANS AND YOU?
Writing for Boundless Webzine, author Heather Koerner paints a remarkably clear picture of what it's like when colleges offer student loans so freely, which invariably end up not so free after graduation.  See the full article at Count the Cost.