Recession Imperils Loan Forgiveness Programs

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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.”

From Kentucky to Iowa to California, loan forgiveness programs are on the chopping block. Typically founded by their states to help students pay for college, the state agencies and nonprofit organizations that make student loans and sponsor these programs are getting less money from the federal government and are having difficulty raising money elsewhere as a result of the financial crisis.

The organizations say the repayment programs have been hurt by a broader effort by Congress to tackle the high cost of the federal student loan program by reducing subsidies to lenders.

Curbing the programs will make it harder to lure college graduates into high-value but often low-paying fields like teaching and nursing.

While few schools may be hiring now in this economic climate, there may be shortages later, educators say.

“You’re going to diminish the quality of the candidates who are thinking, ‘Do I take my skills in math and science into industry or do I take them into the classroom?’ ” said Tracey L. Bailey, who had loans forgiven in Florida and now is director of education policy for the Association of American Educators.

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.

The New Hampshire Higher Education Loan Corporation has suspended its program for teachers, and the Pennsylvania Higher Education Assistance Authority has done so for nurses and people called to active duty in the military.

Iowa Student Loan has reduced the maximum amounts offered to people in two of its three program categories, one for teachers and one for certain types of nurses, in an effort to ensure the programs will last. ALL Student Loan, which is based in Los Angeles, ended a program for nurses last year.

The changes leave students without a critical escape hatch from their federal college and graduate school loans, and they throw up a roadblock for those who dream of teaching but fear an oppressive combination of low wages and high debt.

“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,’ ” Mr. Gay said. And he dutifully did, using federal loans to cover some of the costs of his undergraduate degree in communications and all the costs of his master’s program in special education, which he finished in 2006.

If he had known the forgiveness program was vulnerable, Mr. Gay said, he would have chosen a different career, perhaps public relations. “Which I am actually contemplating doing right now,” he added.

Teachers in Kentucky are hoping to get financing restored for the program. But it is not clear where the money could come from.

“We’d obviously love to see something like that happen,” said Ted Franzeim, vice president for customer relations of the organization. He added that the group had never told participants that financing for forgiveness was guaranteed — a point that schoolteachers dispute.

About 7,500 teachers, nurses and public interest lawyers have benefited from the state’s loan forgiveness program since 2003, at a cost of $77 million, Mr. Franzeim said.

The federal government and some states continue to support their programs to lure promising young graduates to less lucrative jobs. The federal Education Department still offers up to $17,500 in loan forgiveness to math, science or education teachers who have worked for at least five years at an elementary or secondary school in a low-income area.

New Mexico, New Jersey and New York pay for their programs directly instead of relying on nonprofit organizations, and they have not been cut by lawmakers. In Oregon the Legislature is debating whether to suspend funding of a program for nurses.

Another problem for some of the nonprofit groups that rely on selling their loans in a secondary market is that financing has dried up.

The Missouri Higher Education Loan Authority, for example, has stopped offering to reduce interest rates for borrowers working in public service fields like teaching and firefighting, said Will Shaffner, director of business development and governmental relations. The only investor willing to buy its loans now is the federal Education Department, which purchases loans with standard terms only.

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. He enrolled at Spalding University and graduated in 2006 with a master’s in teaching; he is not yet in repayment on his loans because he is taking classes to improve his earning potential.

He has ended up teaching at the very high school he attended, Mr. Henderson said, and teaches geometry in the same classroom where he learned it.

“As it turned out, I really liked it,” he said, “and I’ll stick around for a long time.”