Bankruptcy

Student Loan Forgiveness Programs at Risk?

By meaghano

It seems like every day there?s a new area of the economy hurt by the current recession. Unfortunately, today?s no exception. A recent report in the New York Times suggests that student loan forgiveness programs may be in danger of diminishing, which could be bad news for the country.

What Is Loan Forgiveness?

Loan forgiveness works by adding incentives for doing certain types of work: In exchange for agreeing to work in specific fields, usually in a pre-determined area of the country, for a set number of years, the state will forgive a certain amount of your student loan debt. Currently, the government forgives loans for:

• Math, science, special education, foreign language and other shortage-area teachers
• Teachers in low-income areas
• Social and childcare workers
• Peace Corps volunteers
• People with law and medical degrees working in areas in need of their services

Forgiveness programs have several benefits. Here?s an overview of how they work:

• Students choose jobs with relatively low incomes but high value. For example, someone with math or science skills may choose to teach rather than go into banking right away, knowing that a few years in the classroom will eliminate most or all of her student debt.
• Communities in need of skilled professionals get the workers who can help them. Most government programs work by identifying specific places, usually low-income areas, where graduates can work to have their loans forgiven.
• Recent graduates eliminate worry often associated with educational debt. Because student loans cannot be discharged in most bankruptcy filings, it?s important for graduates to repay them, and forgiveness programs help them do so.

Recession = Less Forgiveness?

Now, many states are struggling to balance their budgets and forgiveness programs are reportedly seen as non-essential in many cases. And the federal government and private sources of income are similarly strapped, which translates to less money all around.

It?s not hard to figure out what this could mean in the long run: current students will be less likely to enter low-paying fields because they?ll have heavy loans to repay. Those currently in loan forgiveness programs may look for better-paying work elsewhere if their forgiveness amount is cut. And communities in need of competent nurses and teachers will suffer.

Get more tips on how to deal with student loans after graduation.

Full post as published by The Bankruptcy Blog on June 03, 2009 (boomark / email).