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Anya Kamenetz Generation Debt

Anya Kamenetz, Generation Debt

Student Loans: Repayment Doesn't Have to Be Painful

by Anya Kamenetz

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Posted on Tuesday, July 15, 2008, 12:00AM

On July 1, Generation Debt got some good news: New rules came into effect making college and graduate school loan repayment much more affordable for a wide range of people.

The idea behind the rules, applauded by student advocates, is to make our higher education system more equitable by helping those who graduate, play by the rules, and meet their obligations to repay the cost of their education.

Helping more qualified young people afford college is a public investment that should see a real return in terms of higher earnings -- and thus more taxes paid -- by members of this generation. And in the case of new programs that target teachers and other public servants, these young people will be filling vital roles in our economy. At a time when the cost of education, food, gas, and everything else continues to rise, it's important that students, families, and recent grads understand these programs and how to take advantage of them.

An Interest in Low Interest

The College Cost Reduction and Access Act (signed into law on September 27, 2007) lowered the cost of borrowing on all student loans. Starting on July 1, the fixed interest rate for new Stafford federal loans dropped from 6.8 percent to 6.0 percent. As a result, the average four-year college student starting school this fall will save a total of approximately $2,500 in interest. Under current law, rates will step down each year until they reach 3.4 percent.

If you have older Stafford loans with a variable rate (those taken out before July 1, 2006), the rate just dropped three percentage points, to 4.21 percent from 7.22%. That makes now a perfect time to consolidate and lock in that great rate. A consolidation loan means combining your student loans from each year into one sum with one monthly payment. If you graduated in May of this year, you can consolidate now and lock in an even better rate of just 3.6 percent. Do it this summer, because both the 4.2 percent and the 3.6 percent rate could go up in July 2009.

With the current turmoil in the credit markets, there aren't as many private lenders offering consolidation loans these days, much less the special perks and incentives that were popular in years past. The good news is that you can always get a consolidation loan directly from the government, through www.loanconsolidation.ed.gov.

Calling All Public Service Graduates

If you work in a qualified public service job for at least 10 years -- and make your debt payments during that time -- the brand-new Public Service Loan Forgiveness program will forgive your remaining debt at the end of those 10 years.

If you are a current student and agree to teach for at least four years, you could be eligible for an additional program, the TEACH grant. This is a grant -- not a loan, so it doesn't have to be repaid -- of up to $4,000 a year.

Who qualifies? There are a lot of fields that qualify as public service under Public Service Loan Forgiveness. You can enroll in this expanded benefit program whether you're now a student or currently employed in an eligible field. This includes any job of 30 hours a week or more with a federal, state, local, or tribal government; the military; public schools and colleges; any post with a 501(c)(3) nonpartisan nonprofit; police officers and other public-safety workers; EMTs; childcare workers; librarians; those who work with the elderly and disabled; public health educators; doctors and nurses in a community clinic; and AmeriCorps workers.

On the other hand, only current college students are eligible for the TEACH grant program. Anyone, student or graduate, who works in public service and has student loans with payments that are scheduled to last longer than October 2017 can sign up for the Public Service Loan Forgiveness Program.

What's the catch? Of course, these programs are designed for people who already have a strong interest in one of the above fields. The commitment is a long one: 10 years of your career for Public Service Loan Forgiveness and four years for the TEACH grant.

Also, your student loans must be with the federal direct loan program, not with a private lender such as Sallie Mae. In order to take advantage of the program, you can consolidate your loans into the Direct Loan program here.

Finally, there is a risk with any program like this that the laws or rules might change during the time you're paying back the loans. In the short term, the exact qualifications might change between now and November 1, when the Department of Education finalizes its rules.

Help for Those Drowning in Debt

Look out for another improvement to the loan program, coming next July 1. If you have high student loan debt relative to your income, a program called Income Based Repayment can help. It will allow you to repay your loans based on a sliding scale. So for a graduate earning $35,000 with $40,000 in loans, monthly payments would be capped at $242.50, compared to $460.32 under standard repayment. All remaining balances are forgiven after 25 years.

Go here and here for all the details on these new programs.

 

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90 Comments

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  • Yahoo! Finance User - Monday, July 21, 2008, 4:46PM ET  Report Abuse

    • Overall: 1/5

    I personally find it interesting on the "Public Service Loan Forgiveness" you will get your loan forgave after 10 years of payment; BUT you have to be on a standard 10-year payment plan (hmmm, think about it, how much do you have left after 10 years...$0!) Or on an income-deferall plan, which takes into account your income. So unless you have just a TON on loans or make nothing (Under $20,000) it will not help you either! Article was ok, just not a fan of the plan above.

  • Yahoo! Finance User - Monday, July 21, 2008, 2:58PM ET  Report Abuse

    • Overall: 2/5

    Folks can take a deduction on their taxes if they've paid student loan interest during the year -- something that folks who are hurting or just starting out paying (i.e. target audience) might like to know.

  • Yahoo! Finance User - Monday, July 21, 2008, 2:52PM ET  Report Abuse

    • Overall: 1/5

    Ummm, didn't she just parrot everything her link said?

  • Yahoo! Finance User - Monday, July 21, 2008, 12:46PM ET  Report Abuse

    • Overall: 2/5

    Thank you for the insight. I, however stand firmly in the camp that education loans should have interest that tracks inflation. It's more than an investment, its preservation. Not to worry, soon China will subsidize all education and continue to kick our asses there too... and we'll gladly hand that over like everything else.

  • Yahoo! Finance User - Sunday, July 20, 2008, 9:42AM ET  Report Abuse

    • Overall: 4/5

    Isn't funny that we have a Loan Forgiveness Program for public service and teachers, but you enlist in the military and you can't pay previous college debt with the GI bill? Loan deferment is possible, but lenders like Fanny Mae get confused and send you to debt collection. It is good that we value AmeriCorps higher than the Armed Services. I would rather have spent a summer going door to door handing out food stamp applications rather than spending years underwater waiting for world war three. I think we should send all that public good will to Iraq and Afganastan, along with the Peace Corp to help end the war. Lets send the professional public service people to administer the peace. Our priorities as a society are wacked.

  • Yahoo! Finance User - Friday, July 18, 2008, 10:05AM ET  Report Abuse

    • Overall: 1/5

    Worthless.................

  • Yahoo! Finance User - Friday, July 18, 2008, 9:25AM ET  Report Abuse

    • Overall: 2/5

    To the last poster - why such hostility and assumptions that those of us who made it through with no loans are silver spooners? Are you assuming that some of did not acquire scholarships for college? I personally went through my undergrad on an ROTC scholarship and in fall of 2009 will be attending the grad school of my choice on the Army's dollar. I left my undergrad with zero debt from my scholarship and GI Bill as well as had a job the day I graduated. Don't make assumptions based on one writer and think that anyone graduating with no debt had a silver spoon in their mouth. However, I do agree on your comment about corporations and individuals - individuals should be given the advantage of cheap money just as corporations receive those same benefits.

  • Yahoo! Finance User - Friday, July 18, 2008, 12:27AM ET  Report Abuse

    • Overall: 1/5

    RE:DLEWA: Apparently it is ok for business to reap the rewards of CORPORATE WELFARE, but you rail against anyone trying to start out, with some help from the government. Either you lie like a rug and cannot admit that you needed help from Uncle Sam when you graduated, or you had a silver spoon in your mouth, and make it sound like you struggled...so hard! Pleazzzzzzzzzzzze tell us DLEWA how you were up 48 hours straight to make it after graduation living on Chef Boyardee! BOTTOM LINE: Maybe it was easy for some of you people back in the late 80's or mid-late 90's, but anyone graduating in the new millenium got a rude awakening. Calling them pinko's and commies only shows the lack of intelligence from the hollier than thou people who were fortunate. Unfortunately, not many are fortunate these days, and could do with you the stupid drivel that DLEWA and the ilk provide. If the shoe were on the other foot, I would probably guess DLEWA would be asking for help, and getting bashed by others. I think a rude awakening is in order. Also, this stupidity that Anya is calling for wealth redistribution is another joke. I didn't know so many people with graduate degrees had a problem with reading comprehension, but this is one with an undergraduate degree that didn't benefit from her, nor did I get rich from her ideas (presidential race not withstanding EITHER WAY). But if I did, I would laugh my head off. After all, I wouldn't mind Robin Hood giving me the 4/5 stars who call me a socialistic commie! Those who throw stones, are apt to get hit by them!

  • Yahoo! Finance User - Thursday, July 17, 2008, 5:21PM ET  Report Abuse

    • Overall: 5/5

    I think we all know how Anya paid off her student loans;-) Naughty girl!

  • Yahoo! Finance User - Thursday, July 17, 2008, 4:19PM ET  Report Abuse

    • Overall: 1/5

    Seriously, a little research next time. This is for undergraduate loans only. It seems many of us soon to be graduate students have wasted a good part of our day trying to confirm an incorrect statement.

  • Yahoo! Finance User - Thursday, July 17, 2008, 2:42PM ET  Report Abuse

    • Overall: 1/5

    Where is the commune that produced you and what did they feed you Anya?

  • Yahoo! Finance User - Thursday, July 17, 2008, 2:17PM ET  Report Abuse

    • Overall: 3/5

    For those of you who are still paying down student debt and haven't consolidated, the Fed decreased rates on Plus and Stafford loans - http://www.whatsmyscore.org/blog/?p=51 I found out from this site here, but it's not for everyone.

  • Yahoo! Finance User - Thursday, July 17, 2008, 1:24PM ET  Report Abuse

    • Overall: 2/5

    Uhh... my student loan company just folded and sold out to another company. All is not well even in the once invincible student loan business

  • Yahoo! Finance User - Thursday, July 17, 2008, 12:05PM ET  Report Abuse

    • Overall: 2/5

    I read the full Loan Forgiveness parameters because my wife is a public school teacher. Well, you have to make 10 years payments on a standard repayment plan or a plan that requires you to qualify based on low earnings (where the amount goes up to even it all out). Oh, and you can't qualify if you extend the term beyond 10 years. So, if you make all your payments on time for 10 years, for a 10 year loan, they forgive the balance. Um, THERE IS NO BALANCE LEFT! Nice job, government.

  • Yahoo! Finance User - Thursday, July 17, 2008, 9:59AM ET  Report Abuse

    • Overall: 1/5

    Anya, please do update the story to note that the rate drops affect ONLY undergraduate loans. As a soon-to-be graduate student, I just wasted a half-hour in the hopes that my loan rate had suddenly, magically dropped without either myself or my loan company noticing.

  • Yahoo! Finance User - Thursday, July 17, 2008, 8:51AM ET  Report Abuse

    • Overall: 1/5

    This is the second Anya column in a row that advocates government programs as a surrogate for the family. In the last, she warned that if we don’t pay more money to the government in the form of social security (on top of the over 12% we pay now) that we may *gasp* “someday…be clearing out that bedroom for Mom and Dad”. Now the government needs to step in to make college “more equitable” for those whose parents would rather invest in a new car than their child’s education? There was a time that parents of modest means would scrape together savings and make sacrifices to ensure their children’s education. In the world according to Anya, parents need not worry about saving for their own children. Instead, they should just fork over a portion of their pay for “the collective”. I’m sure the government can handle “equitable education” in the same high-quality way that it handles “equitable retirement” vis-a-vis Social Security. As Anya says, social security is actually a great program. It just needs a teensy weensy bit more money this year….

  • Yahoo! Finance User - Thursday, July 17, 2008, 7:36AM ET  Report Abuse

    • Overall: 1/5

    Wait... Isn't this the law that screwed up the entire Student Lending industry because private lenders pulled out because the forced rates are below fair market value and they found they couldn't be profitable?

  • Yahoo! Finance User - Thursday, July 17, 2008, 12:49AM ET  Report Abuse

    • Overall: 1/5

    Jim - Wednesday, July 16, 2008, 8:35AM ET: "I always read these articles top to bottom. Anya are you married?" How about reading her bio? It says she is married. Your idol barely researches topics, you can do a half-azzed job too. I guess that her fans have just been trained to wait for industrious people to do the work while they sit around waiting for the handout.

  • Yahoo! Finance User - Thursday, July 17, 2008, 12:29AM ET  Report Abuse

    • Overall: 1/5

    Anya, you are getting better at writing propaganda. This article doesn't hit the reader over the head with a mallet like the BS that you wrote last time. You clearly still want wealth redistribution and handouts, but you are encouraging them in a more secretive manner in this article.

  • Yahoo! Finance User - Wednesday, July 16, 2008, 11:48PM ET  Report Abuse

    • Overall: 1/5

    Quit leaching off the people who earned their own way. Make a smug face and roll your eyes sweetheart. You are so smart.

  • Yahoo! Finance User - Wednesday, July 16, 2008, 11:42PM ET  Report Abuse

    • Overall: 1/5

    I feel like a moron wasting my time reading this dribble

  • Yahoo! Finance User - Wednesday, July 16, 2008, 11:35PM ET  Report Abuse

    • Overall: 1/5

    She thinks she is so hot and so smart. What a moron. How about suggesting that people WORK HARD, build their own businesses, and get off government welfare? I worked my way through college and graduated with only a small 5k student loan. Give real advice you hack.

  • Yahoo! Finance User - Wednesday, July 16, 2008, 10:10PM ET  Report Abuse

    • Overall: 1/5

    This is her second error filled report. The rate drops to 6 percent on 7/1 ONLY for undergrad Stafford loans- not for graduate loans---and only for the subsidized portion of the undergrad loan (where the government pays the interest while you are in school) which is only about $8,500 a year, the unsubsidized undergrad loans, about $22,000 per year, stay at 6.8 percent. Also, in 5 years, the graduate and unsubsidized undergrad loans will still be at 6.8 percent, and the subsidized undergrad loans may go back to the higher rate---the subsidy is only paid for 5 years. In both her articles, she tells you ALL federal loans are at 3.4 in 5 years---she obviously did not do her homework. And she is an "expert"? CJay

  • Yahoo! Finance User - Wednesday, July 16, 2008, 9:25PM ET  Report Abuse

    • Overall: 1/5

    I didn't read this article.

  • Yahoo! Finance User - Wednesday, July 16, 2008, 8:57PM ET  Report Abuse

    • Overall: 2/5

    "Helping more qualified young people afford college is a public investment that should see a real return in terms of higher earnings -- and thus more taxes paid -- by members of this generation."........this sounds like a paid political announcement from the NO-bama campaign......yes, more taxes, oh yes we can!!.....and public service for graduates for up to 10 years!....are you crazy?? grads would be so hopelessly broke in 10 years, they would never recover their earnings potential, while floundering around in a dead end public service job!.....no, sorry, but only hopeless dreamers with no career direction would be willing to waste such precious time instead of working their way through real career opportunities and engaging in networking that secures one's future. the gen-debt kids need to set sail quickly and push hard for their finanical independence, as they will have to fend for themselves through their retirement years.

  • Yahoo! Finance User - Wednesday, July 16, 2008, 8:25PM ET  Report Abuse

    • Overall: 1/5

    For someone who would point her political guns at big business, big oil, and big money where is the outrage over big college? The cost of college tuition has been skyrocketing since the 70’s. There was an excellent article in the WSJ last week about how colleges keep changing text books every single year and get kick backs from the book publishers. Not only that, but certain schools and departments make books specifically for their program for extra kick backs. It might be a 100 page book sold nationwide but with 2 additional State U pages and the book will cost twice the price. These colleges take that additional dirty money and use it for field trips and conferences for the professors and grad students. Basically your average poor broke college student in gen-ed Art History or English 101 is paying for the Art History 404 professor to go to Museums in NY and conferences in Paris. Some of the Presidents of these colleges make 7 figure salaries and I don’t see them demonized in the media. These colleges also have all sorts of scholarships for low income students that make middle class students fit the bill. Look at how many of these Ivy league colleges were using hundreds of millions of dollars worth of donations as a private hedge fund. Instead of lowering tuition to affordable prices, they would raise it every single year while they make millions investing endowments. Obama and his cronies complain that oil companies are evil, but what about crooked Lawyers who chase ambulances and make 500 bucks per hour? How about the 500 dollar per hour lawyers who defend murderers and child rapists? How about colleges who raise prices every year while they have 300 million dollars in the bank and state funding? Anya the Commie should have titled this article, "how to do the least and get the most out of the system". Those kids majoring in hobbies like Art History, Anthropology or dance shouldn’t even bother going to college racking up 50K in debt to go work at a museum.

  • Yahoo! Finance User - Wednesday, July 16, 2008, 8:21PM ET  Report Abuse

    • Overall: 4/5

    To the poster at 5.41pm Point number One: You are of the mindset that you would rather pay off a 2.75% Interest loan than get a 75% match to the dollar on your 401K? Maybe you work for some crappy company that has a tanking stock price and a poor company match, but I sure dont. Even if you lose 30% of your value you still made more than 3%!! (Interest rate on the student loan in case you didnt understand). Maybe if you went to school and got a degree, you would be working at a better place than McDonalds. Point number 2: You would rather rent forever than save up for a downpayment on a house by putting your money in an interest bearing money market or other account? No wonder you are so bitter, you do not have any grasp on financials. This is why you live in your moms basement while working at McDonalds all day.

  • Yahoo! Finance User - Wednesday, July 16, 2008, 7:42PM ET  Report Abuse

    • Overall: 5/5

    Did you just call me a loan lover? Those are fighting words ... and homie you are the modern fanatic.

  • Yahoo! Finance User - Wednesday, July 16, 2008, 7:36PM ET  Report Abuse

    • Overall: 4/5

    For Yahoo! Finance User - Wednesday, July 16, 2008, 6:20PM ET: Why? For the greater benefit to society that a better educated populace provides. Not to mention the fact that she states in the article why -- higher educatiion brings higher pay which brings more taxes paid by that person. The more people paying taxes in the aggregate ulimately reduces the amount I have to pay individually. Providing student loans is one gov't program that the return is far greater than the cost. This is really a no-brainer.

  • Yahoo! Finance User - Wednesday, July 16, 2008, 7:36PM ET  Report Abuse

    • Overall: 5/5

    Nice article for students with loans. I don't understand all the negative comments, some of them just plain idiotic. I think some of these people are the ones who voted for Bush - twice.

Showing comments 6-35 of 90<< PreviousNext >>

More from Anya Kamenetz

Read the Generation Debt Book

According to economics professor Laurence J. Kotlikoff, Generation Debt offers "a truly gripping account of how young Americans are being ground down by low wages, high taxes, huge student loans, sky-high housing prices, not to mention the impending retirement of their baby boomer parents." Generation Debt will inspire you to take charge of your financial future.

Read more from Anya Kamenetz here and here.

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