Asking for Student Loan Forgiveness

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"Asking for Student Loan Forgiveness" was suggested by BusinessWeek.com reader "Cody" from Colorado. He says he took out $45,000 in student loans while in college and went into default. He now owes Sallie Mae $170,000.

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"Sometimes I think going to school is the worst single mistake I've ever made," says Crow, a member of Applebaum's Facebook group and the first in his family to attend college. "I could have worked at Wal-Mart (WMT) for four years and been in a better position than I am now. I feel like I'm almost a slave to this debt."

Signs of Change

Others, like Eric Zapata, an aircraft mechanic in California, say their student debt is a constant worry. Zapata owes about $48,000 in student loans and worries he won't be able to afford an engagement ring for his girlfriend. "I've been saving now for two years, but I haven't been able to get the ring yet," he says. "The $400 in monthly [debt] payments just kills me."

There are already some signs that change is on the way, at least for those with federal loans. The Income-Based Repayment plan, part of the College Cost Reduction and Access Act of 2007, will provide some relief to federal student loan borrowers when it goes into effect on July 1. The program will cap most borrowers' monthly payments at less than 10% of their gross income for 25 years, after which any remaining debt will be forgiven. Another program, the Public Service Loan Forgiveness, allows borrowers to make income-based repayments and have their debt discharged after 10 years. "These programs actually provide some major help now and in the immediate future," says Irons of the Project on Student Debt.

But the situation is not quite as rosy for private loan borrowers. Many of these debtors have been unable to meet their monthly payments, putting their loans in forbearance for several years or, in the worst-case scenario, defaulting on their loans. Making matters worse for private borrowers is a clause in the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act that included private student loans as one of 10 debts that can't be forgiven in bankruptcy cases.

Continuing the Fight

Alan Collinge, author of The Student Loan Scam and founder of StudentLoanJustice.org, has been a student loan activist for nearly four years. He is working to reverse the bankruptcy laws and establish limits on how lenders pursue borrowers. Collinge graduated with three degrees in aerospace engineering from the University of California several years ago and $38,000 in student debt, which he's still working to pay off. He's traveled around the country talking to elected officials and working to restore what he considers "basic consumer" rights. As of yet, he's had no luck, but he hasn't given up hope. "Until someone shows me why student loans should specifically be exempt from bankruptcy protections, it's definitely a fight worth fighting," he says.

Damast is a reporter for BusinessWeek.com.

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