Posted by: Haris H. | June 2, 2009

Loan Forgiveness, Recession, and Career Choice

The New York Times reports on cutbacks made to loan forgiveness programs:

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.

Loan forgiveness programs are meant to enable students with significant debt to enter high-value but low-paying fields, such as teaching in inner cities, public interest law, or nursing in low-income areas. There is little argument that those positions create more value than their salaries reflect, but those salaries make it difficult to recruit quality employees This is especially true for graduates burdened by student loan debt, whose monthly payments make it difficult or impossible for them to consider such lower-paying jobs. Loan forgiveness has provided a valuable service by allowing indebted students to enter such important fields.

The current financial crisis has slashed funding for such programs  – the Kentucky Higher Education Student Loan Corporation has gone so far as to cut payments midstream for graduates who are working and repaying, though most states and organization have simply ceased offering the option to current students. Cutting payments midstream seems like an extreme step, and one that will likely deter current and future students from relying on loan forgiveness, forcing more and more people out of such key fields like teaching and nursing.

A better alternative to unreliable future loan forgiveness would be a system that permits students to gauge their debt load ahead of time. Loan forgiveness programs that commit to payments if conditions are met would reduce uncertainty about their future availability. Better yet, DiscoverScholars permits donors to choose recipients based on major and intended field. Donors can simply fund current students planning to enter valuable fields. Students could plan for their future without having to account for the uncertainty of loan forgiveness programs. Current funding would also give students more flexibility in the future, rather than committing them to whatever conditions loan forgiveness programs entail.

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