Students Relying on Loans Wonder Whether Forgiveness Will Last

/Home/Repayment of Student Loans/Student Loan Forgiveness

This article was reported by Jonathan D. Glater, Ron Lieber, Tara Siegel Bernard and Paul Sullivan and written by Mr. Glater and Mr. Lieber.

If you want to become a public defender, Georgetown University can be a great place to get your legal education. So Heather Gatnarek expects to take on well over $100,000 of debt to get her law degree there and hopes to graduate in three years.

Here’s the problem, though. She’s relying on a new federal program that forgives part of the student loan debt for graduates who enter public service fields. And she was scared out of her mind when she read a New York Times article on Wednesday on problems in Kentucky, where significant cuts in one of its loan forgiveness programs have put thousands of indebted public school teachers and nurses in a painful financial squeeze.

“I would be completely up a creek” without a loan forgiveness program, Ms. Gatnarek said. “I don’t know what I would do. Marry someone rich, I guess. People say that I could just do corporate law for a few years, but I wouldn’t last two days.”

The problem in Kentucky and another that emerged in Connecticut on Thursday raise a frightening question for millions of young Americans considering jobs like teaching or nursing: Are the state or federal programs that promise to forgive student loan debt for people in those or other public service professions backed by ironclad guarantees?

And if the forgiveness isn’t guaranteed, how on earth can anyone expect 18- or 22-year-olds to take on tens of thousands of dollars in debt?

Without such a promise, how can they know that they won’t one day find themselves in a police uniform or in a rural doctor’s office suddenly facing personal bankruptcy?

The good news here is that the federal Department of Education says that almost all its loan forgiveness programs are safe. “It doesn’t depend on some future Congress for us to come through on most of these,” said Robert Shireman, deputy undersecretary of education. “The majority of them get appropriations for the life of the programs.”

But many states say that financing their loan forgiveness programs depends on state budgets. Given declining tax revenues, that doesn’t inspire much confidence. On Thursday, for instance, Gov. M. Jodi Rell of Connecticut proposed cutting the state’s minority teacher grant program, which awards a stipend that is intended to help students pay off their loans, said Constance Fraser, a Connecticut Department of Higher Education spokeswoman.

The states’ changes — or the mere threat of them — are the latest of several ugly financial developments that have shaken individuals of all ages who thought they were playing by the rules. There are the investors close to retirement who thought they were being conservative only to watch their savings decline 25 percent before bouncing back a bit recently. And then there are homeowners in Miami and Las Vegas with plain mortgages who have found the value of their properties plummeting because of the bad behavior of many banks and their customers.

As for the loan forgiveness programs, they have been around since at least the late 1960s, according to Mark Kantrowitz, publisher of the financial aid site finaid.org. States sponsored them first, to keep residents from moving or to encourage graduates to enter careers where there was a shortage of professionals in particular locations or in certain lower-paying fields. Now, the federal government is involved, too.

The problems in Kentucky, Connecticut and potentially elsewhere, however, have an absurdist twist. Nonprofit state organizations and agencies say they do not have money for loan forgiveness programs in part because of cuts in federal subsidies for student lenders. At the same time, tight credit has also made it difficult for lenders to raise additional funds that they could then lend.

In other words, the college graduates from years ago who chose banking over teaching or nursing have now made such a big mess of the economy that the teachers who educate the bankers’ children have to worry about the status of the loans they took out to learn to teach. Pretty rich, no?

And so we’re left with the sad tale of people like Adam and Katie Thomas. Both Louisville, Ky., teachers of special needs children, the Thomases had a combined $85,000 in student loans. Partway through the payback period on those loans, however, the forgiveness program in their state cut its annual subsidy from 20 percent of the couple’s total loan balance to just 1 percent. That pushed them so close to the edge financially that they decided to sell their home and move in with Ms. Thomas’s parents.

We know, we know. How irresponsible of mere teachers to take on that much debt in the first place, right? Many of the online commenters on the article in Wednesday’s paper certainly felt this way.

But if education is a fundamental right, then it’s hard to argue against public policies that try to make sure there are enough teachers to provide that education. And if loan forgiveness is what it takes to get teachers to head to rural schoolhouses or poor urban schools, then that would certainly seem to serve the national interest.

So loan forgiveness programs are not some sinister form of social engineering. Nor do they encourage overindebtedness, per se. Education costs what it costs, and if you need to borrow to attend and intend to eat while doing so, then borrow you must. In fact, borrowing to prepare for a career in nursing or law enforcement makes perfect sense if governmental entities are promoting loan forgiveness programs.

The problem is that many of those running the programs also admit that there are no guarantees that financing for the loan forgiveness programs will survive the next state legislative session (or that the economy will improve enough for them to find other ways of financing the forgiveness). We found this so disturbing that we decided to call up every single entity, state or federal, that we could find that offered loan forgiveness programs. Then, we asked them point-blank if they would like to offer an absolute promise to borrowers or potential borrowers that the loan forgiveness programs would not go away while the borrowers were still using them.

Some states ignored us or didn’t call back in time. Some were stumped entirely and said the question actually raised Constitutional issues, which left us a bit befuddled (and there was a trained lawyer in our posse). A few insisted that theirs was not a Kentucky situation, so scared were they of being tarred with that state’s taint.

Also, we haven’t begun tracking down corporations that offer loan forgiveness to employees. But we’d like to.

So this is where you come in. We’ve created an interactive table at nytimes.com/yourmoney with everything we’ve found so far. If your lender (or law firm or other employer) is not there and you’d like us to ask them to state whether they intend to stand behind their loan forgiveness program, write to yourmoney@nytimes.com.

We intend to finish this database in the next few weeks and then leave it up, with updates, as a sort of reality check.

Meanwhile, a few tips for those of you who are thinking about borrowing a big pile of money or are in the middle of doing so. If you live in a state where loan forgiveness may be in jeopardy, call your state representatives and read them the riot act. It’s hard to imagine that the cuts in the Kentucky program, for instance, will stand. Ken Winters, a Republican state senator there, said he expected the issue of financing for the program to come up in January. We’ll be watching.

Also, ask tough questions when any program is making what seems to be a promise on loan forgiveness. Which loans are eligible? All student loans or only certain types? Is there a limit on the debt that can be forgiven? Is the program guaranteed? By whom? With what funds? For precisely which kinds of public service? Must you apply, and is it selective? And finally, is there a federal program that may make up for some of your state’s forgiveness, even if the federal benefits aren’t as generous?

We hate to get all “X-Files” on you, but Trust No One. Sure, The Truth May Be Out There, but it sure seems as if the truth can change in ways that can cost innocent public servants tens of thousands of dollars.