Borrower Beware: The Risks Of Federal Student Loan Forgiveness

Editor's note: This is Laura Lima's first contribution to the Pantsuit Politics blog. She is a Doctor of Physical Therapy who specializes in women's health in Orlando, FL. 

In 2009 I was accepted into the Duke University Doctor of Physical Therapy program. I knew I’d be incurring a large amount of student loans but I felt comfortable in my decision because I knew that this was an investment in my future. After all I had graduated debt free after going to state school on scholarship. I felt empowered to take on more sizable debt. I had the fortune of coming from a financially stable family with good role models. My older sister had also chosen to go to a private university for graduate school and borrowed from the federal government to be able to do so. I had inherent comfort and knowledge in the pros and cons of this decision. However, unfortunately not everyone can be so lucky. There was absolutely no pre-loan counseling offered when taking out the $56,000 dollars per year over 3 years I’d need to complete the program plus living expenses. But that was OK, I knew what I was getting myself into because people close to me had experience with borrowing large sums of money. I was prepared to pay half of my salary to loans for an indefinite period of time. I was investing in my career and a future that would be free of financial stress. I will never forget one of the last days of grad school when a financial counselor came to our classroom and handed out our final loan statements. Etched in my memory is seeing multiple classmates begin to cry at the six-figure number that stared back at them. It was a sobering moment to say the least. We all should have been happy to be finally completing our doctorate and begin our lives as professionals.  We couldn’t help but think “Oh God, what have I done?.”

But then there was a light at the end of the tunnel. In 2007, the Public Service Loan Forgiveness Program, was enacted. Essentially, if you worked in a public service job, which included a variety of non -profit organizations and government entities, for 10 years while making qualifying payments to the program, the balance of your loan would be forgiven at the end of that interval of time. This was the only option for some of my classmates. It was either enroll in the program or spend over $2000 per month in some cases repaying their loans for the next 30 years. I have to say this sounded like a pretty attractive option. In our case, a “qualifying payment” meant enrolling in something called income driven repayment. In short, you would pay a substantially smaller monthly amount based on the amount of money you made. Instead of spending thousands per month on loans, the number would dwindle to only hundreds.

Taking the plunge

So with all of our futures ahead of us. We all started to make decisions about our career paths. Many of my friends chose to forego higher paying jobs in private institutions for positions which qualified for the loan forgiveness program. I actually did end up taking a job in a non-profit organization in Orlando, but I never enrolled in the loan forgiveness program. In many of our cases, our debt was so great that enrolling in income based repayment meant that our prescribed monthly loan payments wouldn’t even be enough to cover the monthly interest on our loans. Essentially this meant that my principal amount would grow over the life of the loan. I just was not comfortable with the idea of my loan growing. In the back of my mind I was fearful that something wouldn’t work out and I’d be left with an astronomical amount of student loans. I thought about worst case scenarios. What If I got injured and was unable to work? What if something happened that made it impossible for me to meet the requirements of the program?

My fears were validated by a recent article in the New York Times. Since the program was enacted in 2007 and required 10 years of service, the first potential beneficiaries are getting ready to see the Department of Education make good on their promises. Unfortunately in some cases they are being told that the requirements for qualification are actually more subjective than originally advertised. The article cites a lawsuit in which institutions that were previously compliant with the program requirements were retroactively deemed unqualified.

Well there goes that plan. Thousands of borrowers made big decisions as new members of the workforce banking on this program and quite literally put their future in the hands of the federal government to give them ultimate financial freedom. It wasn’t just a matter of choosing where we worked. It was a time commitment as well.  I immediately thought about how this would affect my ability to start a family, to save for a home, my ability to find a job that didn’t just meet requirements but also fulfilled my aspirations which led me to this career path in the first place. I personally know several people who have also felt geographically limited because a place where they would love to live doesn’t have any jobs which qualify.

Unfortunately this is a risk that many people simply have to take and the uncertainty of this federal program is likely to adversely impact some of the borrowers with the most to lose. I was lucky to be able to begin paying down my loans through traditional methods but I fear for my colleagues and future borrowers, some of which could be burned if the program either ever goes away entirely or changes its requirements.

When it comes to loans, knowledge is power

As a new mom of a beautiful 6 month old boy, I think about how I will coach him in the future when he is thinking about his educational choices and later his career options. With the great recession, many of the members of my age group were encouraged to stay in school, pursue advanced degrees, and in too many cases take on unsurmountable amounts of debt in the hopes of getting better jobs and increasing our earning potential. The days of working through school are over so the only option for many people to pursue their dreams and earn advanced degrees is to commit to this unfortunate reality. This doesn’t just affect those in my profession. I know physicians, lawyers, and businesspeople who have all found themselves in the same boat. Recent revelations about the federal forgiveness program puts a new spin on the politics of personal responsibility. The educational and professional decisions my generation has and will make have potentially dire, unintended consequences. Will the sacrifices we’ve made be rewarded? Can we rely on our government to keep its word? Is our post-recession generation being served by public service? These answers are becoming increasingly unclear.