Programs offering student loan forgiveness in return for certain types of work — typically in underserved areas or public service — have been a lifeline for many students and graduates in this tough economy. But now many of those programs are feeling the pinch too, and giving money to fewer beleaguered people.
Americans have more than $1 trillion in loans outstanding, and they’ve been applying to forgiveness programs in droves. Applications to AmeriCorps, which offers educational awards that can be put toward repaying qualified student loans, jumped from 360,000 in 2009 to 582,000 in 2011. In the U.S. Department of Health Resources and Services Administration’s Nursing Education Loan Repayment Program, applications have more than doubled since 2007. And newly minted lawyers, who last year graduated with debt averages around $76,000 at public institutions and $125,000 at private ones, are flocking to public service work as their need for loan repayment assistance or forgiveness mounts.
“The market looks bleak for everyone, but particularly for the youngest generation in our country right now,” said Samantha Warfield, a spokesperson for the Corporation for National and Community Service, which runs AmeriCorps. “The economy has struggled; Americans have looked for non-traditional options.”
But some of those non-traditional options are not faring so well, with rates of application increase often outstripping growth in available space and funding.
Take AmeriCorps. Allocations for the Segal AmeriCorps education awards grew from $131 million in fiscal year 2009 to $197 million in 2010, roughly in line with the sum President Barack Obama proposed in his 2010 budget request for the Corporation for National Service and its programs. But the following fiscal year, Segal award funding barely budged to $199 million — more than $94 million short of what the president requested.
Then there’s the John R. Justice Student Loan Repayment Program, which aims to assist state and federal public defenders and federal prosecutors. The financial burdens of law students have skyrocketed, but funding for the program — which stood at $10 million in fiscal year 2010 — dropped to a scant $3.6 million in 2012.
“It is not uncommon for us to see people with $100,000, $150,000 or even $200,000 in debt,” said Isaac Bowers, senior program manager for educational debt relief and outreach at Equal Justice Works, a Washington, D.C.-based nonprofit. “This is like going to law school and taking out a mortgage. It’s that kind of debt. A program like the John R. Justice programs, worthy as it is, with the kind of funding cuts it has and with the kind of people it reaches, is really a drop in the bucket compared to law school debt out there.”
To be fair, some programs have weathered the tough economy better than others. The federal government has continued to increase funding for its Stafford loan forgiveness program for teachers. Under the Public Service Loan Forgiveness Program, which Congress created in 2007, individuals who work full-time in public service jobs may be eligible for forgiveness of their outstanding balances after making 120 monthly payments on their loans. And the Nursing Education Loan Repayment Program, which offers loan repayment assistance to nurses and nursing faculty working in underserved communities, more than tripled its budget between 2007 and 2011, according to data from the Health Resources and Services Administration.
New ventures have also begun offering loan repayment assistance or forgiveness incentives. In Kansas, 50 counties are trying to recruit new residents by offering them state income tax waivers for up to five years, student loan repayments of up to $15,000 (at $3,000 per year), or both.
The program has received 402 applications since last July and the Nebraska legislature expressed interest in the initiative at its last session, program manager Chris Harris said. With the participating counties matching $1 million in state funding, the program could theoretically accommodate 666 individuals who all qualified for the maximum repayment on student loans.
Still, those new initiatives alone don’t offset the funding hits to programs for some of the nation’s neediest students. In Iowa, for example, students in the class of 2010 had the third-highest statewide average debt level in the country, according to data from the Project on Student Debt. But the budgets for Iowa’s teacher and nursing loan forgiveness programs have tightened over the past five years. In 2008, the state appropriated roughly $438,000 to its teacher shortage loan forgiveness program and gave out 187 awards to 248 applicants. While the program received 699 applicants, it granted only 168 awards as funding shrunk to a little over $392,000.
“They’re getting significantly more applicants than they can fund,” said Heather Doe, a spokesperson for the Iowa College Student Aid Commission. “It’s been a tough couple of years where they’re just not looking to make significant increases right now.”