Wednesday, May 27, 2009

Recession Imperils Loan Forgiveness Programs

“I remember sitting in the financial aid office
and them saying, ‘Pay for every penny of it,
pay for your books through loans,
because they’re going to be forgiven,’ ”
--Travis Gay

This from the N Y Times:
When a Kentucky agency cut back its program to forgive student loans for schoolteachers, Travis B. Gay knew he and his wife, Stephanie — both special-education teachers — were in trouble.

“We’d gotten married in June and bought a house, pretty much planned our whole life,” said Mr. Gay, 26. Together, they had about $100,000 in student loans that they expected the program to help them repay over five years.

Then, he said, “we get a letter in the mail saying that our forgiveness this year was next to nothing.”

Now they are weighing whether to sell their three-bedroom house in Lawrenceburg, Ky., some 20 miles west of Lexington. Otherwise, Mr. Gay said, “it’s going to be very difficult for us to do our student loan payments, house payments and just eat.” ...

...The Kentucky Higher Education Student Loan Corporation is at the extreme in cutting payments to people in midstream who have already finished their educations and are repaying loans, but organizations in many other states have curtailed their new offers to prospective teachers, nurses and others...

Ted Franzeim, vice president for customer relations of the Kentucky Higher Education Student Loan Corporation told the Times that his group had never told participants that financing for forgiveness was guaranteed.

We don't know anyone who believes him.

For about a month now, Susan Weston at the Prichard blog has been spanking the group over the issue. Today she writes,

Either Best in Class was an honest promise or it was a trick to lure in borrowers. That second option is terrible to think about: dishonest incentives to student borrowers are forbidden by federal law and warrant major enforcement action by the federal Education Department.I don't think Best in Class was a trick or a lure.

I think it was a promise, made when the Student Loan People believed they would be able to afford to keep their word. The dishonest part is happening now, when they claim they made no promises and offered no guarantees.

Susan shows more proof that the Student Loan People described Best in Class as a promise students could depend on here, here, and here.

There is no clear accounting of how many people were swayed by loan forgiveness to pursue teaching, or how many might be deterred by the absence of such programs. But the anecdotal evidence suggests the programs matter.

Mark Henderson said he weighed a job as an auditor at Humana, where he worked as temporary help in 2005, against the chance to teach math, a subject he loved. Kentucky’s loan forgiveness program persuaded him to try teaching.

“I thought, at least if I have somebody repay it, I can last five years and get rid of this debt,” said Mr. Henderson, 26, a math teacher in Louisville.

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