The following is an excerpt adapted from Times staff writer Kathy M. Kristof’s new book, “Taming the Tuition Tiger: Getting the Money to Graduate” (Bloomberg, May 2003).
Student debt levels have risen to new records, with the average undergraduate leaving school with $18,900 in student loans. That’s a 66% increase from 1997, according to a study conducted by Nellie Mae, one of the nation’s largest student lenders.
It can be daunting for a newly minted graduate to start his or her career that deep in debt. However, there are a number of programs that will forgive all or part of a student’s debts -- usually in exchange for pursuing a particular profession or volunteering time to a designated cause.
The loan forgiveness programs generally are funded directly or indirectly by the federal government.
That creates national standards, but those standards often are complex.
Lenders have information about loan forgiveness programs, although they may not provide this information automatically. If you think you can qualify, ask.
Here are some of the programs available for reducing education-related debt:
Members of the military can qualify for up to 50% loan forgiveness if they are active-duty personnel serving in a war zone or performing hazardous duties. The cancellation rate works out to 12.5% of the loan amount per full year of service. The applicant did not need to be a member of the military when the loan was secured.
Data on how many military members have applied for this relief are not yet available. However, Education Department officials believe that debt forgiveness under this program is likely to increase because of the war in Iraq.
Child-care workers who complete at least two consecutive years of full-time employment in a preschool or day-care center serving a predominantly low-income community can have a portion of their Stafford loan obligations forgiven or paid by the Education Department. (Stafford loans are the most common type of student loan, accounting for the vast majority of government-guaranteed student debt.)
The program pays off loans in increments -- 20% after two years of qualifying employment, another 20% after three years, 30% more after four years and the final 30% after completing five years of eligible work. In other words, a person who works in a qualified center for five years or more potentially could wipe out 100% of their Stafford loan debt.
The program is offered on a first-come, first-served basis and is contingent on receiving sufficient federal funding. Those who receive forgiveness in one year have priority in subsequent years.
To qualify, the child-care worker must have been a new borrower as of Oct. 1, 1998, not have any outstanding student loans before that date and have a bachelor’s degree in early-childhood education.
The applicant also must have worked for at least two consecutive years as a child-care provider serving a low-income community before applying for loan forgiveness. (Those two years count toward loan forgiveness.)
Finally, the program won’t accept anyone who has received similar benefits under the AmeriCorps program, which offers scholarships or loan repayment in return for a year of community service.
There are two loan forgiveness programs for teachers who work in low-income areas.
The first forgives up to $5,000 in Stafford loan debt for those working in low-income communities for at least five years. To qualify, teachers must have been new borrowers as of Oct. 1, 1998, and taught full time for five years in a school serving a low-income area, as listed in the Annual Directory of Designated Low-Income Schools.
The teacher also must instruct in a subject relevant to his or her academic major if teaching in secondary school, or have demonstrated “knowledge and teaching skills in basic areas of elementary curriculum, such as reading, writing and arithmetic” if an elementary school teacher.
The second teacher’s program will erase up to 100% of Perkins loan debts if the teacher serves in a full-time capacity in a school with students from low-income families, teaches special education or teaches in a subject area in which there is a shortage of qualified teachers, such as mathematics, foreign language and bilingual education.
Vista and Peace Corps Volunteers
Up to 70% of student loans can be canceled for those who serve in the Peace Corps or Vista, a domestic volunteer program similar to the Peace Corps. Like the loan forgiveness program for child-care workers, this program erases debt in increments. Fifteen percent of the original principal amount plus interest is wiped away for those who serve a full year; another 15% is wiped out after the second year; 20% more after the third year; and a final 20% will be forgiven for those who complete four years of service.
Law enforcement officers, health-care workers and certain people who work with the disabled also can qualify for loan-discharge programs, given the right circumstances.
If you are working in any of these fields, contact your lender, the Education Department or the financial aid information hotline at (800) 4-FED-AID ( 433-3243).
Times staff writer Kathy M. Kristof welcomes your comments and suggestions but regrets that she cannot respond individually to letters or phone calls. Write to Personal Finance, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012, or e-mail firstname.lastname@example.org. For past Personal Finance columns, visit The Times’ Web site at www .latimes.com/perfin.