Student Loan Deal May Have Unintended Consequences

Career College Central summary:

  • A government program designed to help students deal with crushing debt loads could have the unintended consequence of encouraging some students to borrow more – and some schools to charge more – than they would have otherwise.
  • Under the public service loan forgiveness program, if you make payments on your federal direct student loans under certain payment plans for 10 years while you are working for a government or nonprofit employer, after 10 years any debt remaining will be forgiven.
  • About one-quarter of U.S. workers are in public service jobs that might qualify, according to the Consumer Financial Protection Bureau. But if you are working at a government agency or nonprofit as a contractor through a private-sector company, you do not qualify, says Lauren Asher, president of the Institute for College Access & Success.
  • There is no limit on the amount of debt that can be forgiven. The biggest winners are those who attend expensive graduate and professional schools. That's because there is a limit on the amount of federal student loans undergrads can take out each year. Dependent undergraduates who take out the maximum allowable Stafford loans will leave school with about $32,000 in qualifying debt. (Their debt will be higher if they also took out Perkins loans, but most students don't qualify for them.)

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