How To Escape The Student Loan Trap


flyingdollarsSACRAMENTO, CA – Good news if you’re trying to pay off a student loan. Starting Wednesday, some college grads will be eligible for lower payments. A new government plan looks at your income, family size and debt..setting caps on your monthly payments. The government may even forgive remaining balances after 25 years. And those in public service may have their loans dismissed after only ten years. But there are some downsides. You pay more in interest over the life of the loan. And, reduced payments usually extend the time you have to pay your loan back. Borrowers can visit for information about the program, and to use a calculator that will help them determine if they qualify and what their new payments might be under the program. KXTV/News10


how-to-get-rid-of-student-loan-debtWith student lending volume growing at an unprecedented clip, many families are taking some comfort in the numerous repayment assistance programs that can come as a perk with some jobs — most of which require government work.

But today’s Wall Street Journal reports (subscription required) that

“Scrutiny Grows as U.S. Pays Staffers’ Student Loans.”

Critics of the lavish spending on student loan repayment programs charge that the security of a government job is an enough of an attraction by itself, especially in this environment, and questions where the student loan repayments are anything more than a handout.

They were adopted in 2002 as part of a plan to attract students to public service — that’s what they call it. I would call it bureaucracy — but some contend that they’re an unnecessary waste of money.

Whether the federal government should offer student loan repayment assistance is outside of my sphere of competence. But with the government wracking up record deficits, there will almost certainly be a push toward cost cutting over the next few years — and that could put these programs on the line.

So here’s my plea to college students and prospective college students: Please, please, please do not take out loans planning to take advantage of these programs without any viable contingency plan. You have no idea whether these programs will exist when you graduate, and any financial aid officer who tells you about them has no stake in the outcome.


Student Loans Could Be Forgiven After 10 Years of Public Service Article Date: 7-24-2008 The government hopes a new loan forgiveness program will give students an incentive to consider a career in public service. 

In exchange for 10 years on the job in a field of public service such as public safety, education, or social work, the Department of Education will erase certain borrowers’ remaining federal student loan debt.

To be eligible for this initiative — the Loan Forgiveness for Public-Service Employees Program — you must have either taken out or consolidated your federal student loans through the federal Direct Loan Program, in which you receive your student loan directly from the government rather than through a third-party lender.

Breaking It Down: How the Loan Forgiveness Program Works The loan forgiveness benefit is available for any federal consolidation loan or any federal parent or student loans you’ve taken out through the Department of Education’s Direct Loan Program.

If you took out your federal college loans from a private lender through the Federal Family Education Loan Program (rather than directly from the government through the Direct Loan Program), you’ll have to consolidate your FFELP student loans into the Direct Loan Program in order for those student loans to be eligible to be forgiven.

In addition to holding a federal Direct loan, you’ll also have to meet certain borrower requirements in order to qualify for the loan forgiveness program: Spend a decade in a public service career. You must remain in a qualifying public-service career, working full-time, for 10 years, during which you must be making payments on the student loans you’re looking to have forgiven.

You must still be working in the public-service sector at the time your student loans are forgiven. Hit the 120 mark. During your 10 years of full-time public service, you must make 120 monthly payments on the Direct college loans you want forgiven. Only payments made after Oct. 1, 2007, will count toward the payment requirement.

If you have FFELP loans (college loans that you took out from a private lender and not from the federal government) that you’re consolidating into the Direct Loan Program, you’ll only be able to count the payments you make on your Direct Consolidation Loan after your FFELP student loans are consolidated.

Any payments you’ve made prior to Oct. 1, 2007, or to any lender other than the federal government won’t count. Sign up for a qualifying repayment plan. Your required 120 payments must be made under one (or a combination) of three repayment plans: standard repayment, income-contingent repayment, or income-based repayment, which becomes available July 1, 2009.

If you’re enrolled in a different Direct Loan repayment plan, only those payments you make that are at least equal to the monthly payment amount you’d be required to make under the standard repayment plan will count toward your 120-payment requirement.

The Fine Print: How You End Up Paying Off Your Student Loans Yourself If you’re considering applying for the loan forgiveness benefit, you may want to look into your eligibility for the income-contingent and income-based repayment plans, which allow low-income borrowers to qualify for lower payments and extend their repayment period to 25 years.

Only borrowers who are making reduced monthly payments on an income-contingent or income-based repayment plan will likely have a remaining balance left to forgive after making 120 payments on their student loans.

If you’re in the standard repayment plan, which has a repayment term of 10 years, you may find that you don’t have any student loan debt left to forgive after meeting your 120-payment requirement, since your 10-year repayment term is the same amount of time that the government requires you to hold your public-service job before any of your student loans can be forgiven.

What Qualifies as Public Service? Public-service fields eligible for the loan forgiveness program include: Military Emergency management Fire departments Law enforcement Public library sciences Public school education Public child care Public health Public service for the elderly Public service for individuals with disabilities Nonprofit work with certain tax-exempt organization.


Here’s news on the new bankruptcy law, which takes effect Oct. 17, elicited some questions worth answering on student loans and how to find a bankruptcy lawyer.

Q: G.C. asks: “I would like to know if it’s possible to get rid of student loans under Chapter 7. I have almost $86,000 and can’t seem to ever finish paying them (plus $15,000 in credit cards).”

A: The answer depends on two things:

— Were the loans issued or guaranteed by the federal government or a private nonprofit organization?

— Would you be filing for bankruptcy before or after the law changes on Oct. 17?

If the loan was issued or guaranteed by the federal government or a nonprofit agency, it cannot be discharged in bankruptcy unless you can convince the court that you have an undue hardship.

“It’s almost impossible to show an undue hardship,” says Steve Elias, author of “The New Bankruptcy: What It Will Do for You,” from Nolo Press.

“If a person is 60, sick, owes a lot of money and will never be able to pay it back, that person might get rid of it. If you are younger and you have potential ahead of you, even if it doesn’t look like it today,” you probably cannot get this type of student loan forgiven.

This is true today and will be true after the law changes.

Federally guaranteed loans include Stafford student loans, Plus loans for parents and Perkins loans, plus a few older types.

These guaranteed loans can either be direct loans issued by the Department of Education or by private-sector lenders such as Sallie Mae or Bank of America. If guaranteed loans are consolidated, they remain federally guaranteed and virtually impossible to discharge.

If, on the other hand, you have an education loan from a private-sector lender that is not guaranteed, it may be discharged under Chapter 7 bankruptcy today.

After the law changes, it can’t be discharged unless you can prove undue hardship.

The new law gives this type of loan, often called an alternative loan, the same protection as guaranteed student loans. This protection applies only to debt that is incurred solely for the purpose of paying higher-education expenses for yourself, your spouse or a dependent.

Many private-sector lenders such as Sallie Mae make both guaranteed and non-guaranteed loans, and it’s not always easy to know the difference. If you want to know if your loan can be discharged under current law, ask your lender. For more on student loans and bankruptcy, go to

If you are having trouble paying off your loans, talk to your lender as soon as possible. There are various ways to postpone or stretch out your payments. For more on this subject, go to

Q: Mike asks, “My daughter is looking for a bankruptcy attorney in San Francisco. How can she make sure that she finds someone reliable and someone who could advise her about options other than bankruptcy? Is there a Web site that evaluates bankruptcy attorneys in the Bay Area? How do you know who is reputable?”

A: Start with the State Bar of California Web site (

For general advice on choosing a lawyer, click on Consumer Pamphlets, then on How Can I Find and Hire the Right Lawyer?

You can also use this site to check a lawyer’s credentials and disciplinary history, if any.

From the home page, click on Attorney Search, then on Attorney/Member Search and enter the attorney’s name.

To find a lawyer who specializes in bankruptcy or other areas, go back to the home page and click on Lawyer Referral Ser-vices. Go to the bottom of this page and click on Legal Specialist Search.

Use the drop-down menus to pick a specialty area and a county.

This will give you a short list of lawyers who have been certified by the State Bar in a specialty. To become certified, they have to take an exam, have a certain level of experience in the field and get references from judges and other lawyers.

There are many good attorneys who have not been certified, but this is one place to look.

Another way to find specialists is to contact the lawyer referral service in your county. Go back to the home page and click on Lawyer Referral Services. Next, use the drop-down menu to choose your county.

You will get a list of approved referral services. Each operates a little differently, but they should be able to help you find a specialist in your county.

The Bar Association of San Francisco Lawyer Referral Service will take a brief description of your case and submit it to participating lawyers.

If it can find a lawyer willing to talk with you, it will charge a $25 referral fee. The lawyer will do the first half-hour consultation for free.

“If it’s a potential bankruptcy, those are the easiest cases because they are so straightforward in most cases. If it’s complicated or the amount of debt is really low, we sometimes have trouble finding an attorney,” says a spokeswoman for the San Francisco association.

Another option: Go to the National Association of Consumer Bankruptcy Attorneys Web site (

Click on Find a Bankruptcy Attorney Near You, select a state and hit submit.

If your daughter is interested in hearing about alternatives to bankruptcy, she might contact the Consumer Credit Counseling Service of San Francisco at (800)777-7526.

Under the new law, debtors must receive credit counseling from an approved agency before filing for bankruptcy. After filing, they must take a class in financial management from an approved agency.

The U.S. Trustee Service is still approving agencies for counseling and education. Whether or not you intend to file for bankruptcy, these may be good places to get help managing debt.

To find a list, go to click on Credit Counseling and Debtor Education. Counseling and education may be available online.


Like most recent college grads, Tamika Gambrell, now 26, left school with hefty student loans–debt that now has to be paid, along with all the other bills that come with living on one’s own.

Gambrell, who lives in Glenolden, Pennsylvania, right outside of Philadelphia, earns good money 

working as a sales analyst for a large consumer products company. Still, even with her $60,000 a year salary, and annual bonuses that tack on another $5,000 in take-home pay, it’s tough stretching her paycheck to meet all her financial obligations.  

For starters, there’s the $840 a month that Gambrell and her partner pay to rent their apartment. 

Then there’s a $280 monthly car note. After graduating in 2003 with a degree in human development from Colby College, a small liberal arts school in Maine, Gambrell racked up $24,000 in credit card debt, so that’s another $300 a month out of the budget Driving 60 miles to and from work each day means spending $300 on gas every month.

When you throw in 401(k) contributions, healthcare premiums, taxes, food, utilities, and, of course, her $133 monthly student loan payment, it’s easy to see why money can get tight.


Still, in many ways Gambrell considers herself fortunate. “After four years, I walked away owing only $28,000 in loans. Considering that tuition and room and board alone at Colby was $35,000 a year, I think I did alright,” she says.

Like millions of people in their 20s, 30s, 40s, and beyond, Gambrell took out student loans for a shot at a better quality of life and the chance to improve her career options. But with the price tag for a college education skyrocketing, the typical student graduates with nearly $20,000 in student loan debt . According to the College Board, the cost of attending a public, four-year college or university in the 2006-07 school year–including tuition, fees, and room and board–was $12,796, up 35% over the past five years; for private schools, the cost was a hefty $30,367.  

Ensuring that you don’t end up drowning in student loan debt requires solid money management skills, a working knowledge of how these loans work, the realization that interest rates are somewhat negotiable, and a familiarity with available government assistance programs. Read on and we’ll help you navigate the world of student loan debt.


To retire those student loans quickly, first get a handle on the types of loans you have. Start by logging on to, the Website for the National Student Loan Data System. There’s a lot of information there, including all the federal loans a student owes, the dates various loans were received, how much interest and principal are outstanding, and the status of the loans (i.e., if they’re in deferment, default, repayment, etc.). Before loan details can be obtained from the NSLDS, you must first secure a four-digit PIN from the Department of Education, available at