Wiping Away Loans

Student loans are sort of like the national debt, except unlike the government, average Americans cannot borrow more to keep up with the interest payments. Coupled with credit card debts and car payments, more Americans are finding themselves in a perpetual interest prison, facing a grim future. Instead of making choices about where to invest their money, they're deciding which payments to skip and which to make as they juggle defaults and late fees and penalties. For borrowers, a daunting post-graduation debt of $15,000 can easily double in 15 years as interest capitalizes. Moreover, about 8 percent of borrowers are currently in default of their loans.

Under two new federal programs, there's not only hope on the horizon in contending with educational debts, but even incentive for borrowers to find careers in the public service sector. Beginning July 1, the Income-Based Repayment (IBR) and Public Service Loan Forgiveness programs will allow people to tap into low-to-no monthly payment plans depending on economic circumstances. Under IBR, for most eligible participants, payments will be lower than 10 percent of their monthly income, and after 25 years of making payments, any remaining debt will be wiped clean. For those who earn 150 percent below the poverty level (around $16,000/year), monthly payments will be $0. It goes upward from there, capped at 15 percent of income. (Use the IBR calculator to determine your payments).

But here's even better news. Under the Public Service Loan Forgiveness program, anyone who works full-time for an eligible “public service” company — nonprofits, government agencies, Americorps or the Peace Corps — will have their loan balances forgiven after 10 years. This is a great opportunity for educators, public servants, and anyone who works (or wants to work) for nonprofits like the Nature Conservancy and Greenpeace. Having a $50,000 loan wiped clean after a decade of employment is equivalent to earning an extra $5,000 per year for that decade — a substantial increase in salary.

Can't beat that noise.