The Problem With Student-Loan Forgiveness

Career College Central summary:

  • If you have student loans, chances are you wish there was a way to make them disappear. And in a way, there is: The federal government now offers three repayment plans that lower monthly payments and will—eventually—forgive remaining debt. A separate plan forgives loans for people who take certain public-service jobs. Some of these options, however, are so new that nobody knows how well they'll serve borrowers. Even when it comes to well-established repayment plans, many students don't truly understand their options. And some analysts say that policy adjustments are needed to ensure that students don't get too comfortable taking on debt and institutions don't get too comfortable charging high prices.
  • "A lot of students will take out loans because they hear that if you're in a certain job it gets paid off. That's not always the case," says Lauren Ellcessor, 28, a counselor at the Educational Opportunity Center in Norfolk, Va. The federally funded center helps mostly low-income, minority, and first-generation college students figure out their higher-education options. Some clients arrive with debt from prior college degrees—or attempts at degrees—and false hopes.
  • "I get the quote: 'I'm here to get Obama's plan to get rid of my student loans,' " Ellcessor says. It's not that easy, she tells clients. To qualify for federal loan forgiveness, borrowers need to make on-time payments for years, sometimes decades. Under current rules, borrowers need to have debt at a certain level relative to their income to enter income-driven repayment. Eligibility depends on when borrowers first took out loans and the kinds of federal loans they carry.
  • Income-driven repayment has been an option for holders of federal direct loans since 1994. But the idea really started to gain momentum in the mid-2000s, when it became clear that more and more students were depending on loans to pay for college. Adjusting monthly payments for lower-income earners protects borrowers from default, while eventual loan forgiveness offers a light at the end of the tunnel.

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