Government Helps Low-Income Grad Students Pay for School | Education

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Apr 19, 2020

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Today’s economy means higher tuition and fewer scholarships for graduate study. But starting this fall, grad students will get a big break when it comes to repaying federally backed loans. That’s when they’ll be able to ask the government to let them pay a percentage of their income instead of a standard fixed monthly amount.

Although mortgages and other loans are increasingly hard to come by, grad students can still borrow the full cost of their studies through federally backed programs. Those programs cover not only all tuition and fees but also transportation, books, and reasonable living costs. The big change is that “income-based repayment” will allow those with small paychecks or big educational debts to cap their monthly payments at less than 15 percent of their income.

Best of all, graduates whose incomes are low because they’re in public service jobs may have some of their loans forgiven. For this, they can thank a new federal law and also a growing number of smaller loan repayment programs offered by grad schools, employers, and charities.

“Loan repayment options and forgiveness are getting better and better every year,” says Corinna Spencer-Scheurich, an attorney for the South Texas Civil Rights Project in San Juan, Texas, who racked up about $70,000 in debt from college and law school and has received help paying it down from her alma mater, Lewis & Clark Law School, and from a nonprofit. Spencer-Scheurich, who got her law degree in 2004, says she’s managed to afford a car and a house despite making less than $50,000 a year at a job she loves. She plans to apply for the feds’ new income-based repayment program when it opens for business July 1. If she stays in her public service job and makes 10 more years of low monthly payments, whatever is left of her debt—she figures tens of thousands of dollars—should be forgiven in 2019.

Spencer-Scheurich hopes the new repayment programs will inspire more people to pursue dreams of earning a grad degree and entering public service. “People should follow their hearts. It is possible,” she says.

Look Here First

Students hoping to borrow their way through graduate school should first apply for federal education loans. Even when credit is tight, these are easy to get, and they’re usually the lowest-cost options. Federal grad loans are available to almost all students and can be obtained directly from the federal government, through private lenders such as Sallie Mae, and from state nonprofit educational lending agencies. A search tool for cheap federal loans is at Simple Tuition.

While it can seem daunting to try to figure out which loan is the best deal and whether you should look to the feds or to an alternative lender, financial aid officers say students should apply for loans in the following order:

  • Cheapest. Some schools offer low-income grad students federal Perkins loans, which charge no interest while the student is in school and only 5 percent afterward. These are the cheapest education loans currently available. Unfortunately, Perkins funding is limited, so many otherwise qualified students can’t get them.
  • Fairly cheap. Almost all grad students can get at least $20,500 a year in federal Stafford loans, which this fall will charge a maximum annual rate of 7.14 percent (after counting all fees). Low-income Stafford borrowers will be charged no interest while they are in school and only about 5.9 percent (counting fees) after they leave.
  • Next-to-last resort. Students who need more than the Stafford maximum can borrow their remaining cost of attendance, even covering books, transportation, and rent, through the federal Grad PLUS program, which will charge a maximum of 9.2 percent in annual interest this fall.
  • Last resort. Some students, including those who have fallen behind on their undergraduate federal loans, don’t qualify for federal loans for grad school. Usually, the only way these students will get a private loan from a bank is if they can find a U.S. citizen with good credit to guarantee repayment. A few schools are trying to help by making small loans, and some students are trying to raise money from private citizens using social networking sites such as greennote.com. But private loans are difficult to obtain and expensive. What’s worse: Many loan repayment programs—especially the government’s new income-based repayment program—won’t cover them.
  • If You’re Already Working

    Those who have already left school and want help repaying their loans have several places to turn.

  • Government. For several years, the feds, the states, and many local governments have offered loan forgiveness to teachers, healthcare workers, and other in-demand professionals willing to work in underserved areas. That is still the case. The big news for all current and aspiring grad students is that, starting July 1, anyone with federal education debt can apply to lower his or her payments and get part of the loans forgiven.
  • Not everyone will qualify, of course. The first step will be to consolidate any existing loans with the federal government and apply for income-based repayment. Graduates who make less than 1.5 times the poverty level (which is currently $10,400 for a single person) won’t have to pay a penny on their federal education debts. On any earnings above that level, the government will expect grads to pay about 15 percent.

    After 10 years of payments, those whose income has remained low because they’ve been doing public service work (for a government or nonprofit employer) can have their remaining debt wiped clean. And after 25 years of payments, the same goes for other low-income grads.

  • Nonprofits. A growing number of charities and professional associations are starting funds to pay down the debts of public servants. The California Dental Association Foundation, for example, is helping to pay off the loans of four dentists serving in low-income clinics on the West Coast. James Forester, who agreed to a salary half the going rate of private dentists to work at a clinic in Paso Robles, says his dental school debts of more than $150,000 scared him and his wife at first, but they’re breathing much easier now that the foundation will pay off most of his remaining debt if he stays at the clinic three years. “It’s no free ride,” says Forester. “You have to work hard.” But his experience shows that there are options for those with big debts and an interest in service.
  • A growing number of professional schools—law, business, public policy, and others—are offering to help grads who go into public service pay down their debts through tax-free vehicles known as LRAPs, or Loan Repayment Assistance Programs. Anyone considering public service should target graduate schools with generous LRAPs. Heather Jarvis, who has analyzed law school LRAPs for Equal Justice Works, a Washington-based nonprofit that supports public-interest attorneys, found that some schools’ LRAPs have strict rules limiting the number of grads who can get help. And some cap the monthly assistance at a few hundred dollars, even though some of their grads might be looking at debt payments of closer to $1,000 a month.

    But others are far more generous. Some LRAPs will help repay private loans, for example. And many will pay down at least some debts for those who perform only a year or two of public service. School-funded LRAPs can help out people who wouldn’t benefit from the new government payment plans, Jarvis notes. Jarvis herself faced $125,000 worth of education debt (much of it private) but made it work through her LRAP. The programs can make it possible for debt-laden professionals such as herself to take public service jobs paying as little as $25,000 a year. “I don’t regret it for a minute,” Jarvis says—although she added that she’s “not real sure how I am going to pay for my three children’s education.”

    Spencer-Scheurich, the Texas attorney, says borrowing lots of money and then having to jump through bureaucratic hoops to get the debts repaid is a hassle. “But there are lots of paperwork in our lives,” she adds. Keeping her payments low and arranging to wipe out tens of thousands of dollars of debt are worth it. Besides, she says, “I’m a lawyer. Hopefully, I can handle it.”


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