Public service employment is a topic I haven’t covered much of. This weekend I spent some time attempting to sort out my financial situation in light of my soon-to-be-in-repayment student loans. I graduate from Law School on Friday!

As a quick aside here is a great resource that I wish a financial fairy godmother could have whispered in my ear before I spent the better part of Sunday getting my information organized. The National Student Loan Data System compiles your loan and other finaicial aid information in once place. Even if you have multiple degrees from multiple institutions the NSLDS is a good place to get started.

As part of my research I learned about a new loan forgiveness program Congress recently authorized in the College Cost Reduction Act.  Aspects of this program are sure to offer hope and encouragement to graduates seeking lower paying careers or careers in the public service.

The program significantly eases the burden associated with those who are so-called “high-debt, lower-income graduates” by creating an “income based” repayment plan which is more generous than the best option previously available called the “income contingent” or “income sensitive” repayment plans.

Here is an example from Georgetown University’s professor Schrag:

Suppose that a single borrower owes $ 100,000;… Suppose further that the borrower has adjusted gross income of $ 40,000 in the first year after graduation. On a standard ten-year repayment schedule, such a borrower would have to pay $ 1173 per month (35% of adjusted gross income and a much higher percentage of after-tax income). But under ß 203, such a borrower would pay each month ($ 40,000 - $ 15,315)X(15%)/12 = $ 309, or only 9% of adjusted gross income. That is the monthly repayment in the first year; as the borrower’s income rises, the repayment amount will gradually rise, but that increase will be moderated by parallel increases in the federal poverty level.  36 Hofstra L. Rev. 27.

The most generous aspect of the program is that borrowers/graduates who spend ten years in the program or make 120 payments while full-time employees in designated public service positions will be eligible to have their remaining principle and interest  forgiven.

Previous programs operating with the “income contingent” options required a waiting period of 25 years before any loan amounts would be forgiven.  Borrowers not engaging in public  service will be eligible for the new “income based” repayment plans and remain eligible for loan forgiveness after 25 years.

There is one major problem associated with the new program’s law.  Any amounts forgiven in will count as taxable income generating an unusually high tax burden in that year.  The net savings should exceed any additional tax liability, however.  Either Congress or the IRS could act to change that but it will not be a significant factor until the first group of borrowers exit the program in 2017.

Any Queercents readers plan on accessing the benefits associated with the College Cost Reduction Act?  Any thoughts on how the new program will affect the economy?  Anybody out there who thinks this option might weigh in their decision to return to school?