Click to Play
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:
If You’re Already Working
Those who have already left school and want help repaying their loans have several places to turn.
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.
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.”