Recession Threatens Student Loan Forgiveness Programs

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MICHEL MARTIN, host:

We want to turn now to a story about how the nation's economic troubles might be affecting students and their career choices. Over the years, a number of states and the federal government have instituted programs to help lure promising students in low-wage, but highly-valued careers like education and nursing. Here to talk more about this is Kelly Field, who's the chief Washington reporter for the Chronicle of Higher Education. She also covers the student-loan industry. Thank you so much for stopping by.

Ms. KELLY FIELD (Chief Washington Reporter, Chronicle of Higher Education): Thanks for having me.

MARTIN: Now Kelly, you may know that there's a children's book called "Is a Worry Worrying You?" And the book is to try to help kids sort out the things they really need to worry about from the things that they really don't. Now is this a real worry that these loan forgiveness programs might be curtailed or even ended, or is that just sort of a free-floating anxiety with no basis in reality?

Ms. FIELD: Well, this is a real worry for borrowers in New Hampshire, Pennsylvania and Kentucky, where they have already cut these programs. A number of states are also considering cutting their programs, including Connecticut, Mississippi and Oregon. So this is a real concern.

So far, the impact has been relatively limited. About 7,500 teachers, nurses and public-interest lawyers have benefitted from the Kentucky program since 2003.

MARTIN: Seventy-five hundred is not a small number.

Ms. FIELD: No, it's pretty substantial. That is, you know, over a eight- or nine-year period. But still…

MARTIN: What about the loans that the Department of Education or the federal government have backed, the loan forgiveness programs backed by the federal government? Are those safe?

Ms. FIELD: Those programs are pretty secure, primarily because most of them are funded on a long-term basis. There are a number of those programs that people who were in these state-based programs could consider applying for.

MARTIN: Now you report - in your reporting last week, you discovered that teaching and nursing seem to be the careers most affected. Why is that?

Ms. FIELD: Well, because these areas tend to have shortages, a lot of states have created programs for teachers and nurses. There are also a lot of programs for public-interest lawyers. You know, a lot of people don't really think about law as being a low-paying profession, or medicine for that matter, but you see some of the highest debt-to-income ratios in these fields for, you know, public-interest lawyers or public defenders. They could be making 30 or $40,000 compared to a starting salary for an associate making 130 or $140,000.

MARTIN: Do you - is there - are you sensing kind of a rallying around these programs? Because on the face of it, you know, you can argue that higher-educated people, people with more education, are already at an advantage in this society. As we look at the pattern of people who are sustaining unemployment, it tends to be people with the least education.

So on the one hand, I could see where people would say gee, you know what? These folks can take care of themselves. On the other hand, as we pointed out, teaching, nursing, police officers, these are vital functions in society. So do you see states making an effort to preserve these programs, or is it just that they're so - their economic conditions are so dire that they're just cutting wherever they can? What's your sense of it? And I know - I apologize. I'm asking you to speculate, but I know what your senses are on your reporting.

Ms. FIELD: Yeah, sure. Well, these programs are very popular among state legislatures and among the federal government. A number of institutions offer them, as well as corporations. And so they're very politically popular and definitely not one of the first items on the chopping block, typically.

Some of the states are facing very dire fiscal situations right now. The National Conference of State Legislatures estimates that next year, states will face budget gaps of $121 billion. So they may be forced to make these cuts, however painful they are.

In some cases, it's not the states that are making the cuts. It's state-based nonprofit lenders, and they've been hit by a combination of federal subsidy cuts, and the credit crunch has made it harder for them to finance new loans. So they have less revenue coming in to make the new loans and therefore, you know, less money to continue these programs.

MARTIN: Are there some parts of the country where these cuts are imminent. And are there any parts of the country where they've been pushed back?

Ms. FIELD: Well, there are several states where they are weighing cuts currently. I'm including Connecticut, where the governor has proposed some cuts, and Mississippi, where the state legislature is now in a special session to debate appropriations to the program and might cut them by up to 20 percent. Oregon State Senate is also considering freezing its programs.

MARTIN: And then finally, in just in the minute or so or two minutes that we have left, we had done a lot of reporting earlier this year on how the credit crisis was affecting the sort of the outlook for students in the upcoming school year, that we were reporting that a number of, you know, lenders, because of the credit crisis overall, people were concerned that there wasn't going to be the availability of credit for people who - and even people who are tapping home equity loans because the decline in home values around the country. People have not been able to tap those sources of revenue. What is your reporting telling us about the outlook for students for the upcoming school year who are trying to find ways to fund their education?

Ms. FIELD: Sure. Well, the federal student loans are still widely available, even though a number of lenders stopped making loans as a result of the credit crunch and the subsidies that I mentioned before, but private loans have become scarcer. They're requiring, you know, better credit for students that want to take out the loans, cosigners in a lot of cases.

So far, we haven't heard a lot of examples of students who have been unable to get loans, but it is harder for students with bad credit to get private loans than it used to be.

MARTIN: And are there particular professions where that tends to be - or are there - is this across the board? Is this mainly a matter of what the individual student's profile is, or are there certain fields or fields of study where the impacts are greater, as there are on the loan forgiveness side?

Ms. FIELD: Right. It has the most to do with the student's credit score, but they - in some cases, lenders also look at which school the student is going to and the default rates of that institution.

MARTIN: Kelly Field is the chief Washington reporter for the Chronicle of Higher Education. She also covers the student-loan industry. She was kind enough to join us in our Washington, D.C., studios. Thank you so much for speaking with us.

Ms. FIELD: Thanks for having me.

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