Hank Voss
10-09-2010, 02:59 PM
Hey Friends,
This may be of interest to those of you with student loans from undergraduate or graduate education.
I think it is a topic worth discussing, and relevant to many of us who had to take loans out for our education--but the opinion expressed below is MINE (along with a one of my friends in the PhD program at Wheaton College), it is NOT an endorsement or recommendation by World Impact or The Urban Ministry Institute.
On Thursday I was talking with a friend who would like to serve among the poor as a teacher, but he has $100,000.00 in student loan debt. He did not see how it would be possible. I mentioned to him two federal programs (one established in 2007 and one in 2009) which are designed to help people who are serving among the poor in non-profit organizations (501c3). For the programs to be of benefit, you must work at least ten years with a non-profit organization, and your income must be low. Once you have enrolled in the programs (IBR and PSLF), the remainder of your loan is completely forgiven after 120 monthly payments (10 years of payments). Because the monthly payments are based on your income (starting at 150% of the federal poverty line), those of who work at the poverty line would have very small monthly payments, and the majority of the loan would be forgiven after ten years of service.
There are quite a few variables in these programs, so they are not for everybody. I waited a year before I decided to use the program. But for some, they may open the door to service among the poor, or allow others to continue to serve among the poor when they had given up hope of being able to stay because of student loan debt.
Below is a bit more information put together by one of my fellow PhD students at Wheaton who is also taking advantage of this program. Hopefully our city gates forum can be a center of discussion for those of us interested in or currently taking advantage of the programs while engaged in service among the poor here in the inner cities of the United States.
__________________________________
Here is a brief summary of the benefits, along with some online resources for you to peruse. With one disclaimer: I am not a financial aid professional or a tax/finance expert. I discovered these programs 6 months ago on my own, and because I could not get sufficient help from my financial aid counselor at the time, I researched things on my own. I am simply sharing what I've learned out of a desire to help folks pursue their calling, and exhort you to always verify your understanding of the program with someone official (either from the department of education, a financial aid office, or a lawyer).
Here then, is my brief explanation of IBR and PSLF:
The College Cost Reduction Act of 2007 introduced two new programs called IBR (Income Based Repayment) and PSLF (Public Service Loan Forgiveness) that have the potential to really help people who have lots of school debt, large families and work for the government or a 501(c)(3) full-time.
IBR prevents anyone who is enrolled in the program from paying more than 15% of their 'expendable income' (defined as AGI minus 150% of the poverty line for one's family size). For a normal borrower using IBR, whatever debt remains after 25 years of these lower-than-normal payments is forgiven. The deal is sweeter for those working for the government or 501(c)(3)'s--they get all the IBR benefits, but their debt is forgiven after only 10 years in the program. As you can tell, the programs are most beneficial for folks with large debt, low income, and large families. Thus, although they are an improvement on the old rules for everyone, they will benefit some much more than others. Here are a few examples to get you thinking:
* Student A has a family of 5 upon graduation, and leaves with $70,000 in debt. He goes to work in overseas missions, and so his AGI is quite low (missionaries, as clergy, don't have to count their housing allowance as income): $35,000. On a normal 10 year repayment schedule, he would have to pay about $805/month for 10 years (roughly a third of his income!). Using IBR, his payments would be $0/month--that number gets recalculated every year, but is designed to keep your payments the same if your income rises at the same rate as inflation/cost of living. After 10 years of these ultra-low payments, he will have his debt forgiven. Even if he were not working for a non-profit organization, and had to wait 25 years for forgiveness, he would still pay hardly anything back.
* But that's probably an outlier. Here's an example of IBR working less well. Student B is single when graduating, and leaves grad school with $50,000 in debt. She takes a job earning her $40,000/year. Her 10-year repayment schedule would be around $575/month, but with IBR her payments would be around $300/month. If she doesn't work for a non-profit, then IBR will be helpful in the short run, but a toss up in the long run. That is, it will allow her to repay her loan more slowly (which may be helpful), but she will end up paying a little more total over the long haul--it would probably take around 17 years. Note that she'd be better off using IBR than switching to a 30-year repayment schedule or a 'balloon' repayment schedule, since if her income dropped sometime during repayment, her required payments would also be lowered. On the other hand, if she were working for a non-profit, she would have a significant amount of her loan forgiven after 10 years.
* Here's another scenario. Student C has $90,000 in debt when he graduates, but gets a job where his AGI is about $65,000. Without IBR, he would have to pay about $1035/month. He has 2 kids, so he would only pay about $400/month. At this rate, he might or might not still have debt to be forgiven after 25 years (depending on various factors). But if he works for a non-profit, he would pay about $48,000 back, and get the rest of his remaining debt and interest (which is around $90,000) forgiven at year 10.
These are just some ideas to help you get a grasp of the range of situations in which these programs would work. Here are the best resources I've found on the web:
If you are interested in getting more material about these programs, check out the following:
1. www.ibrinfo.org--an outstanding site dedicated to these programs, with very helpful FAQ's.
2. http://www.equaljusticeworks.org/resources/student-debt-relief/default --a site mostly for law students who want to do non-profit work, but still helpful
3. http://www.finaid.org/loans/publicservice.phtml --a generally respected financial aid site that contains much of the same info as IBRinfo.org
4. http://www.nasfaa.org/publications/2008/negregforgive020608.html --a page from a site that is intended for Financial Aid administrators that gives details about some of the negotiation of details of the law that has to be done before the program is put in place.
5. I've also attached a fact sheet released by the department of education this February that explains the program in simple terms.
6. In addition, I've attached an article from a legal journal by a law professor at Georgetown who explores the implications of the law for various kinds of students.
_____________________
Hopefully this is helpful information for some of you. If it is, please contribute to the discussion, and let us know.
Hank
This may be of interest to those of you with student loans from undergraduate or graduate education.
I think it is a topic worth discussing, and relevant to many of us who had to take loans out for our education--but the opinion expressed below is MINE (along with a one of my friends in the PhD program at Wheaton College), it is NOT an endorsement or recommendation by World Impact or The Urban Ministry Institute.
On Thursday I was talking with a friend who would like to serve among the poor as a teacher, but he has $100,000.00 in student loan debt. He did not see how it would be possible. I mentioned to him two federal programs (one established in 2007 and one in 2009) which are designed to help people who are serving among the poor in non-profit organizations (501c3). For the programs to be of benefit, you must work at least ten years with a non-profit organization, and your income must be low. Once you have enrolled in the programs (IBR and PSLF), the remainder of your loan is completely forgiven after 120 monthly payments (10 years of payments). Because the monthly payments are based on your income (starting at 150% of the federal poverty line), those of who work at the poverty line would have very small monthly payments, and the majority of the loan would be forgiven after ten years of service.
There are quite a few variables in these programs, so they are not for everybody. I waited a year before I decided to use the program. But for some, they may open the door to service among the poor, or allow others to continue to serve among the poor when they had given up hope of being able to stay because of student loan debt.
Below is a bit more information put together by one of my fellow PhD students at Wheaton who is also taking advantage of this program. Hopefully our city gates forum can be a center of discussion for those of us interested in or currently taking advantage of the programs while engaged in service among the poor here in the inner cities of the United States.
__________________________________
Here is a brief summary of the benefits, along with some online resources for you to peruse. With one disclaimer: I am not a financial aid professional or a tax/finance expert. I discovered these programs 6 months ago on my own, and because I could not get sufficient help from my financial aid counselor at the time, I researched things on my own. I am simply sharing what I've learned out of a desire to help folks pursue their calling, and exhort you to always verify your understanding of the program with someone official (either from the department of education, a financial aid office, or a lawyer).
Here then, is my brief explanation of IBR and PSLF:
The College Cost Reduction Act of 2007 introduced two new programs called IBR (Income Based Repayment) and PSLF (Public Service Loan Forgiveness) that have the potential to really help people who have lots of school debt, large families and work for the government or a 501(c)(3) full-time.
IBR prevents anyone who is enrolled in the program from paying more than 15% of their 'expendable income' (defined as AGI minus 150% of the poverty line for one's family size). For a normal borrower using IBR, whatever debt remains after 25 years of these lower-than-normal payments is forgiven. The deal is sweeter for those working for the government or 501(c)(3)'s--they get all the IBR benefits, but their debt is forgiven after only 10 years in the program. As you can tell, the programs are most beneficial for folks with large debt, low income, and large families. Thus, although they are an improvement on the old rules for everyone, they will benefit some much more than others. Here are a few examples to get you thinking:
* Student A has a family of 5 upon graduation, and leaves with $70,000 in debt. He goes to work in overseas missions, and so his AGI is quite low (missionaries, as clergy, don't have to count their housing allowance as income): $35,000. On a normal 10 year repayment schedule, he would have to pay about $805/month for 10 years (roughly a third of his income!). Using IBR, his payments would be $0/month--that number gets recalculated every year, but is designed to keep your payments the same if your income rises at the same rate as inflation/cost of living. After 10 years of these ultra-low payments, he will have his debt forgiven. Even if he were not working for a non-profit organization, and had to wait 25 years for forgiveness, he would still pay hardly anything back.
* But that's probably an outlier. Here's an example of IBR working less well. Student B is single when graduating, and leaves grad school with $50,000 in debt. She takes a job earning her $40,000/year. Her 10-year repayment schedule would be around $575/month, but with IBR her payments would be around $300/month. If she doesn't work for a non-profit, then IBR will be helpful in the short run, but a toss up in the long run. That is, it will allow her to repay her loan more slowly (which may be helpful), but she will end up paying a little more total over the long haul--it would probably take around 17 years. Note that she'd be better off using IBR than switching to a 30-year repayment schedule or a 'balloon' repayment schedule, since if her income dropped sometime during repayment, her required payments would also be lowered. On the other hand, if she were working for a non-profit, she would have a significant amount of her loan forgiven after 10 years.
* Here's another scenario. Student C has $90,000 in debt when he graduates, but gets a job where his AGI is about $65,000. Without IBR, he would have to pay about $1035/month. He has 2 kids, so he would only pay about $400/month. At this rate, he might or might not still have debt to be forgiven after 25 years (depending on various factors). But if he works for a non-profit, he would pay about $48,000 back, and get the rest of his remaining debt and interest (which is around $90,000) forgiven at year 10.
These are just some ideas to help you get a grasp of the range of situations in which these programs would work. Here are the best resources I've found on the web:
If you are interested in getting more material about these programs, check out the following:
1. www.ibrinfo.org--an outstanding site dedicated to these programs, with very helpful FAQ's.
2. http://www.equaljusticeworks.org/resources/student-debt-relief/default --a site mostly for law students who want to do non-profit work, but still helpful
3. http://www.finaid.org/loans/publicservice.phtml --a generally respected financial aid site that contains much of the same info as IBRinfo.org
4. http://www.nasfaa.org/publications/2008/negregforgive020608.html --a page from a site that is intended for Financial Aid administrators that gives details about some of the negotiation of details of the law that has to be done before the program is put in place.
5. I've also attached a fact sheet released by the department of education this February that explains the program in simple terms.
6. In addition, I've attached an article from a legal journal by a law professor at Georgetown who explores the implications of the law for various kinds of students.
_____________________
Hopefully this is helpful information for some of you. If it is, please contribute to the discussion, and let us know.
Hank