Reply #61: Recession Imperils Loan Forgiveness Programs By JONATHAN D. GLATER [View All]

[Demeter]

http://www.nytimes.com/2009/05/27/your-money/student-loans/27forgive.html?_r=1&ref=business


When a Kentucky agency cut back its program to forgive student loans for schoolteachers, Travis B. Gay knew he and his wife, Stephanie — both special-education teachers — were in trouble.

“We’d gotten married in June and bought a house, pretty much planned our whole life,” said Mr. Gay, 26. Together, they had about $100,000 in student loans that they expected the program to help them repay over five years.

Then, he said, “we get a letter in the mail saying that our forgiveness this year was next to nothing.”

Now they are weighing whether to sell their three-bedroom house in Lawrenceburg, Ky., some 20 miles west of Lexington. Otherwise, Mr. Gay said, “it’s going to be very difficult for us to do our student loan payments, house payments and just eat.”

From Kentucky to Iowa to California, loan forgiveness programs are on the chopping block. Typically founded by their states to help students pay for college, the state agencies and nonprofit organizations that make student loans and sponsor these programs are getting less money from the federal government and are having difficulty raising money elsewhere as a result of the financial crisis.

The organizations say the repayment programs have been hurt by a broader effort by Congress to tackle the high cost of the federal student loan program by reducing subsidies to lenders.

Curbing the programs will make it harder to lure college graduates into high-value but often low-paying fields like teaching and nursing.The changes leave students without a critical escape hatch from their federal college and graduate school loans, and they throw up a roadblock for those who dream of teaching but fear an oppressive combination of low wages and high debt.

“I remember sitting in the financial aid office and them saying, ‘Pay for every penny of it, pay for your books through loans, because they’re going to be forgiven,’ ” Mr. Gay said. And he dutifully did, using federal loans to cover some of the costs of his undergraduate degree in communications and all the costs of his master’s program in special education, which he finished in 2006.

If he had known the forgiveness program was vulnerable, Mr. Gay said, he would have chosen a different career, perhaps public relations. “Which I am actually contemplating doing right now,” he added.

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