Beginning July 1, new federal student loans will carry an interest rate of 6.8%, twice the 3.4% rate on loans issued last year. Given that student loans cannot be discharged in bankruptcy, the rate should be close to zero, as the lender has very little risk. But no one is listening to me!
Student loans are not necessarily bad. The key is to limit your borrowing to an amount that can be repaid given a likely starting salary in your field.
A number of programs can ease the loan burden through repayment or forgiveness. Many are specific to certain careers, so you’ll need to think about participation before graduation. If you are on the fence about which major to declare, the loan forgiveness opportunity could be the enticement you need to switch.
Here’s a list to get you started:
Federal loan forgiveness programs. The federal government has two major student loan forgiveness programs, one for teachers who work in certain high-need districts and one for people who enter public service with a government agency or nonprofit organization. Both programs require a few years of work – and payment on loans – before forgiveness is granted.
Other government programs come with educational benefits that can be applied to student loans or other educational costs. These require national service, but you may find that to be a rewarding way to build a resume while earning money toward loans. The programs include:
- Americorps-VISTA and Peace Corps: These programs allow people to volunteer in the United States or overseas in a wide range of fields. Participants receive training and support for living expenses during their stints, with deferral on their student loans while they volunteer. When they leave the program, they receive an educational assistance grant that can be used for further education or to pay off existing student loans.
- Indian Health Service: The Indian Health Service provides health care to American Indians and Alaskan Natives. Most locations are in rural areas, but not all; the facilities need people with different medical skills and offer loan forgiveness in exchange for an employment commitment.
- Military service: Military service is not for everyone, but if it is right for you, the educational benefits are fantastic. Enlist before college, and you may be able to receive educational benefits when you finish your service through the GI Bill. Enlist during college and receive educational benefits through ROTC or the military academies. Enlist afterward, and you may be able to receive as much as $65,000 in loan repayment.
- National Health Service Corps and Health Resources and Services: The U.S. Department of Health and Human Services offers different loan forgiveness programs to encourage people to enter primary care and to work in certain underserved communities. Doctors, dentists, mental health professionals and nurses are eligible; scholarship programs also exist for current students.
College Loan Repayment Assistance Programs (LRAPs). These programs are offered by colleges to their alumni. They are generally found at private colleges, especially in their law schools and MBA programs. These grants are given to graduates who enter public service, nonprofit or religious careers. There are only a handful of these programs now, but many schools are adding them as they find donors. Check with your campus financial aid office to see if you might be eligible.
State programs. Many states have their own loan forgiveness programs, designed to encourage graduates to work in the state and pursue certain careers. These range from a social worker loan forgiveness program in New York State to an almost countless number of health sciences programs.
Do a little research or talk to your campus financial aid office to find out these and other programs that may help you pay off your loans. The sooner you do it, the more time you have plan.