Federal Forgiveness

Students and young professionals interested in public service careers got a graduation gift from Congress and the federal government on Wednesday. On July 1, a new law went into effect that will help keep payments on some student loans affordable, and provide dramatic loan forgiveness to students who commit to 10 years of public service.

"When I was going to school, my fear wasn't how I was going to pay student loans off, it was, 'How do I get a student loan?'" said Office of Personnel Management Director John Berry, during a press conference at Johns Hopkins University in Baltimore. "What we've done to this generation is in many ways worse …We've saddled you, we've put an albatross around your neck that weighs you down for the whole beginning of your career."

The 2007 College Cost Reduction Act does two things. First, it establishes the income-based repayment program, which allows all students with qualifying loans to stretch their repayment period up to 25 years. If they are earning 150 percent of the poverty level or below, they do not have to make payments on their loans. If they are making more, their loan payments are capped at 15 percent of what they earn above 150 percent of the poverty level.

Only loans made to students (not their parents) are eligible for income-based repayment. Students can pay off Stafford, Grad Plus and Perkins loans that have been consolidated into a guaranteed federal loan through the program. But private loans, or loans that are not guaranteed by the federal government, are not eligible.

The second provision -- the public service loan forgiveness option, authored by Rep. John Sarbanes, D-Md. -- provides additional assistance to students who enter government or nonprofit jobs. If they work in public service, student loans they have not paid off after 10 years will be forgiven in their entirety.

Sarbanes on Wednesday said careers at all levels of government and at 501(c)(3) nonprofits could qualify students for loan forgiveness, citing everything from emergency management to work in public libraries. In a nod to younger workers' career mobility, he also emphasized that the 10 qualifying years of service don't have to be continuous: Employees can move between the public and private sectors, and qualify for loan forgiveness at the end of 10 total years of service.

One caveat is that employees must have made at least 120 monthly payments on the loan while in a qualifying job for their remaining debt to be erased. Payments made on or after Oct. 1, 2007, count toward the 120 minimum.

"At a time when our president … has issued this call to service across the country, recognizing that we have significant shortages in many parts of our government workforce and we need talented people, recognizing that nonprofits can't afford to pay people more to keep them in that job, this is perfectly timed," Sarbanes said.

Sarbanes also said he hoped the program would provide an incentive for educational institutions and states to consider innovative loan forgiveness programs to entice students into public service careers.

Johns Hopkins University President Ronald Daniels praised Sarbanes for his work on the loan forgiveness option, and introduced several graduates of Hopkins' college and School of Advanced International Studies who are considering public service careers. SAIS graduate Robert Miller said his education had left him with $100,000 in student loans, $25,000 more than he'd made in five years as a Peace Corps volunteer and a legislative aide on Capitol Hill. And Sonia Starker, a recent graduate of the university, said loan forgiveness could be transformative, turning "what could be short acts of service into lifelong endeavors."