Today's generation of college students would like to enter nonprofit jobs, because they want to contribute to the greater good instead of just earning a paycheck. Unfortunately, many are deterred from walking this path because they have college debt and want to earn a nice junk of change to pay it off. Considering that nonprofit positions tend to pay less than for-profit companies they opt for the private sector.
The Bureau of Labor Statistics estimates that from 2006–2016 there will be a 10 percent increase in the quantity of jobs in the United States, bringing the total to 166.2 million jobs in 2016. Of these new jobs created, the largest percentage of growth will be in education and health services, with a projected 5.5 million new jobs, which is an 18.8 percent increase. Additionally, the government—with the anticipation of 61 percent of its baby boomer population retiring within the next decade—will look to fill these jobs as well as increase employment by 4.8 percent bringing total employment to 11.3 million jobs.
The need for skilled workers in these industries is astounding, but the problem is that when the economy is booming, public service jobs do not pay as well as the private, for-profit sector. In a declining market, those factors tend to outweigh the financial hardships, and become a very attractive option.
So in an attempt to address the needs of the mid to low-income students and the foreseeable labor issues, the U.S. government decided to increased benefits by offering healthcare, retirement, subsidized public transport and educational benefits--oh and they created the Public Service Debt Forgiveness Program, all to motivate students to enter public sector positions. The program was specifically designed to help students with high debt to income ratio. The program, which is part of the College Cost Reduction and Access Act of 2007, creates the opportunity to eliminate the remaining debt after ten years of monthly payments, or 120 payments, for those entering the following fields of service:
• Emergency Management
• Government
• Military Service
• Public Safety and Law Enforcement
• Public Health
• Public Education
• Social/Family Service Agency
• Public Childcare
• Public Service for Disabled
• Public Interest Law Services
• Public Services for the Elderly
• Public Library Services
• School-based Library Sciences/Other School Services
• Certain tax exempt organizations
• Faculty Teaching in high-needs areas
• Full-time faculty member at a tribal college or university
According to the National Center for Education Statistics, the average cost of an undergraduate tuition for the academic 2005-2006 year was $27,317 for a 4-year institution including tuition, fees, and room and board. Essentially, a four year degree, a conservative estimate of a four percent increase per year, would cost $116,000. In 2008 the government’s starting wages for a Grade 7 (an entry-level salary position) was $32,534, making it an unattractive position for someone seeking to get out from under his or her undergraduate debt.
The critics claim that the debt-forgiveness program will not benefit financial institutions that provide loans to students. They believe the problem with the program is that students are required to consolidate their Federal Direct Stafford/Ford Loans, Federal Direct Unsubsidized Stafford/Ford Loans, Federal Direct PLUS Loans, and Federal Direct Consolidation Loans through the Department of Education. As of July 1, 2008, the government began allowing the consolidation of existing private lender loans into the program. Meaning that as the program gains public awareness, more and more consumers with a high debt to income ratio will switch their student loans from private lenders, such as banks, to the government. Nonetheless, the College Board’s report entitled Trends in Student Aid , stated that private undergraduate loans mounted to a record high of $14.5 billion in 2006-2007.
In a time when financial institutions are already facing uncertainty in the lending market as foreclosures reach record highs, this may be an excellent plan to help struggling recent graduates pay down and forgive some of their debt as they begin public service, but some say it may be detrimental to those lending institutions who are currently holding their student debt and are making money off the interest on the loans.
In the meantime, here are several steps that will enable a financial institution to provide high-quality customer service by providing important facts about the program.
Firstly, make your debt holders aware of the situation. Being truthful and informative will gain the trust of those reading their statement, direct mail, e-newsletter or email.
Secondly, it’s very important to point out the fact that the program will only benefit those with a high debt to income ratio. Even though the program covers graduate loans, those who received a position where they earn a competitive wage that isn’t significantly lower than their debt will be unable to benefit from the program. It’s only designed to benefit those with entry-level wages and high debt. In order to showcase this feature, it’s important to point customers to the consolidation calculator, which will provide the customer with an estimated monthly payment, which may be more than they are currently paying. When consolidating, in reality, the payment plans are equal to 120 payments or ten years, which means that they won’t have a loan balance to pay off at that time and the payments will most likely cost the customer more than they are paying now.
Their only hope of taking advantage of the Public Service Debt Forgiveness program would be to examine the income-contingent debt consolidation, which is the only plan that allows for payments that extend past the 10 year period. So, once they plug in their adjusted gross income, total debt and interest rate, they will see whether or not that payment will benefit them. If their income to debt ratio is too high, they will not be able to benefit from the program. Using an example is an easy way to illustrate this point. By taking the average debt to income ratio and creating an example to showcase the payments per month under the program versus the average current payment, a lender may be able to discourage some customers from switching over, because the income contingent payment may be more than they are currently paying.
Thirdly, it’s extremely important to drive home the fact that customers should research which program is right for them, and even if it is the Public Service Loan Forgiveness Program, there are other factors that customers should think about before they decide to consolidate their loan with the Department of Education. The customers need to understand that an income-contingent repayment plan will only benefit those who won’t have a significant increase in salary. If a customer thinks that they will not be earning much more than they current do within ten years, than this program will benefit them. Additionally, they must still be employed in one of the public service positions at the time when the debt is forgiven. In today’s society many companies, even nonprofits like AmeriDream whose revenue will be affected by the changes in the FHA lending rules, are facing layoffs and unemployment.
Finally, many customers want to have the lowest payment when don’t have much discretionary income. Pointing out the uncertainty in society and the likelihood of them maintaining a low level position within the public service sector, as well as showing the costs savings of loan consolidation, will allow customers to seriously consider their future and whether switching lenders is the right decision.
