NYTimes: New Loan Forgiveness Plans

The New York Times has posted the U.S. Department of Education's guidelines for the new federal loan forgiveness programs. This sounds like a sweet victory for college students. The interest rate on new federal Stafford loans, the most widely used federally guaranteed student loan, will drop to 5.6 percent, from 6.8 percent. By 2012, the rate will fall to 3.4 percent, under a schedule mandated by Congress.

The first option, income-based repayment, limits what borrowers have to pay to 15 percent of the difference between their gross income and 150 percent of federal poverty guidelines (After borrowers make payments on loans for 25 years, the balance is forgiven). This is better than the income-contingent repayment plan.

The second option, Loan Forgiveness for Public Service Employees, waives the federal loan balance after 10 years of repayment for anyone working in public service professions.

To participate in the program, a borrower must shift their loans into the federal Direct Loan program, in which the government extends credit directly. The forgiveness is not available for loans made by banks or other loan companies, like Citigroup or Sallie Mae.

The definition of public service under the forgiveness program is broad. Jobs in government, public schools or colleges, nonprofit organizations, public interest law, early childhood education, public health or public libraries all could qualify, according to the Education Department.

Click here for more information about the Direct Loan program. Share this good news!