Throughout his 8 years in office, there is one thing that young people can genuinely thank George W Bush for– and that’s the College Cost Reduction and Access Act of 2007, or CCRA. This Act was an amazing piece of legislation that will allow more middle and low income families to send their children to college and graduate school.
For many, the most important aspect of the CCRA will be its loan forgiveness component. In essence, the Federal Student Loan Forgiveness law will allow students to pay back their federal loans based on their income, not based on the amount of money they owe. This means that students who decide to go into certain areas of work that are not high paying– but are nonetheless extremely valuable– will not be threatened by default when pursuing their line of work. As a law student myself, this law will enable me to work for non-profits serving low income populations without feeling overburdened by my student loans.
There are two different types of loan repayment and forgiveness plans. If you choose to take advantage of the CCRA, you will be placed in either one of the plans depending on the line of work that you choose.
Public Interest Loan Repayment
After graduation, if you choose to go into public interest work, you will be able to opt for this repayment plan. Under the public interest repayment plan, you will be required to pay 120 payments (equivalent to 10 years of payments) while you are in a “qualified employment” full-time position. Qualified employment is quite broad and includes any government employment, non-profit employment, and a variety of other “public service” type jobs.
Your payments will be calculated based on the amount of income you make, and therefore you will not be drowned in your debt under the CCRA.
For example, if you qualify for the public interest loan repayment plan, and you are starting at $50,000.00 per year, you will be required to pay approximately $430.00 per month for 10 years (ending at $635 per month during your last year due to salary increase). If you owed $115,000 then the amount you would pay after 10 years would be $63,220 and the government would forgive $129,980.00 of loans and interest owed. The amount forgiven is also tax-free.
Compare the $430-$635 per month to the amount you would have to pay without the CCRA. Under the old 10 year fixed payment plan, you would be required to pay a whopping $1,323.00 per month (while making only $50,000 per year!) and you would get nothing forgiven at the end of 10 years. No wonder so many lawyers went into corporate law in the past– payments under the old plan were much too suffocating.
Income Based Loan Repayment
This repayment plan is very similar in structure to the public interest plan except there is no “qualifying employment”. You can essentially do any job at any pay and qualify for this repayment plan. The major difference is that any amount owed that remains will be forgiven not in 10 years but in 20 years. The main advantage to this repayment plan is that you will be paying based on your income and not the amount owed.
If you would like to play around with the numbers to see approximately how much you will owe on each of these plans, check out the FinAid calculator: http://www.finaid.org/calculators/ibr.phtml.
If you would like more information about the various plans, check out the Equal Justice Works website, and this PDF in particular: http://www.equaljusticeworks.org/files/ejw_ccraa.pdf.