Despite talk of economic recovery, it remains a tough time for many with student loan payments to make.
And—despite the fact that the last quarterly report from the Federal Reserve Bank of New York highlighted an increase in student loan balances 90 or more days delinquent, which may approach a possible 22 percent of all student loans—Capitol Hill isn't offering a TARP-style student debt bailout. Education programs could even be cut to 5.1 percent below current levels if the sequester cuts go through as scheduled on March 1.
[Explore more about student loans and managing debt.]
All of us burdened with educational debt need to get creative and look for assistance. Loan repayment assistance programs, or LRAPs, give you funds to help you make the monthly payments on your loans, freeing up money so you can pay for necessities like food and rent.
Here are some things to consider when you're evaluating whether an LRAP is right for you:
1. Do you have private loans? Private loans aren't eligible for federal relief programs such as Income-Based Repayment and Public Service Loan Forgiveness and, as the Consumer Finance Protection Bureau has reported, borrowers often find it very difficult to negotiate an affordable repayment plan. Since you can usually use LRAP funds to pay down your private loans, they are particularly helpful for anyone with a significant amount of private loans.
2. How does the LRAP provide payment? Although LRAPs often work well with federal relief programs, you should make sure the LRAP disbursement fits the requirements of the federal program.
For example, earning Public Service Loan Forgiveness requires you to make 120 qualifying monthly payments. Unfortunately some LRAPs—including the John R. Justice Student Loan Repayment Program, or JRJ, which aids federal public defenders and state prosecutors—provide a lump sum payment that covers a number of monthly payments directly to your loan servicer.
That lump sum payment will at most count as one payment towards the 120 you need to earn loan forgiveness (and it may not even count as one) so you would either have to make additional monthly payments on your own or delay your progress toward forgiveness. In that case, the Student Loan Ranger suggests you evaluate whether the LRAP is worthwhile for you or lobby the LRAP provider to change how it disburses payments.
[Learn about online federal student loan counseling.]
3. What are your obligations? It may seem simplistic, but you should do a cost-benefit analysis of an LRAP based on factors like how much support the program will provide vs. the cost of applying and any obligations the program will require of you. This means reading the fine print (all the lawyers please stand up), because it's possible the LRAP may not benefit you.
When it comes to the amount of funding the LRAP will provide, look at factors like: minimum and maximum grant amounts; the maximum number of years of assistance; which of your loans will be eligible for repayment (some LRAPs will only provide you with assistance for the loans you took out to get a professional certification such as a JD, DVM, or MD); income caps that might prevent you from receiving future funds as your salary increases; and whether or not you can combine the funds with other LRAPs for which you are eligible.
You should also make an effort to assess your chances of receiving support before applying. Check the LRAP's website or application to see if it says how many awards are granted each year and how many people apply.
LRAPs may also prioritize people who received degrees from state schools, work in particular geographic areas, serve particular people, or are employed in a limited number of eligible fields. The degree to which these fit your current career or your career plans can help inform your assessment of your chances.
[See how some employers help with student loan payments.]
LRAPs also often include a requirement that you work in your eligible job for a certain number of years, which may not fit with your career plans. If you don't fulfill those requirements, you may have to pay back the funds. The JRJ program requires a grant recipient to remain employed as a public defender or prosecutor for at least three years.
4. What is your tax liability? Some LRAP funding, especially from programs structured as forgivable loans in return for public service work, is not taxable. LRAPs through a college or university often fit this model. Others, including any LRAP through an employer, will count as taxable income. Take your tax situation into account when considering an LRAP.
Isaac Bowers is a senior program manager in the Communications and Outreach unit, responsible for Equal Justice Works's educational debt relief initiatives. An expert on educational debt relief, Bowers conducts monthly webinars for a wide range of audiences; advises employers, law schools, and professional organizations; and works with Congress and the Department of Education on federal legislation and regulations. Prior to joining Equal Justice Works, he was a fellow at Shute, Mihaly & Weinberger LLP in San Francisco. He received his J.D. from New York University School of Law.