In October the College Cost Reduction and Access Act of 2007
(HR 2669) was signed into law.
This is good news for those in nonprofit or government careers,
including public interest law services. It puts an annual limit
on loan payments for borrowers with high educational debt compared
to income level and helps borrowers who are employed in public
service make affordable monthly payments over a period of 10 years.
After 10 years of payments, the federal government will forgive
the eligible federal educational debt that remains.
Below is a summary of two of the major sections that may affect
you. For the full text, please click
Please note that this summary is preliminary and is based on
the text as signed. There will likely be updates and amendments
clarifying the law.
Section 203 allows borrowers of Stafford, Perkins,
Grad PLUS and Federal Consolidation (less any undergrad PLUS)
loans to repay their loans on the basis of the income at the time
of repayment (income-based repayment).
Section 401 deals with Federal Loan Forgiveness
for Public Service Employees. This section of the law takes effect
July 1, 2009, but does count eligible payments made after October
Sec. 203 Income-Based Repayment
Generally, the provisions in this section become effective July
Loan payments will be limited to 15 percent of a borrower's discretionary
income or 15 percent of the amount that a borrower's (and spouse's
if applicable) adjusted gross income exceeds 150 percent of the
poverty line, divided by 12. Unpaid interest and principal are
capitalized and any outstanding loan balance is forgiven after
20 years of repayment. For the 2007 Federal Poverty Guidelines,
PLUS Loans made on behalf of a dependent student and Direct Consolidation
Loans that contain PLUS loans are not eligible for the income-based
Holders of these loans must apply the borrower's payments first
to interest, second to fees, and then toward the principal of
Any interest due and not covered by the borrower shall be paid
by the Secretary for up to three years except for periods that
a borrower is in deferment due to economic hardship.
The lender shall also capitalize the interest due when the borrower
stops participating in the income-based repayment program, or
begins making payments larger than what is specified under income-based
Principal due and not paid under income-base repayment shall
Borrowers may remain in income-based repayment more than 10 years.
When borrowers leave the program the maximum payment required
on the loan shall not exceed the monthly amount based on a 10-year
repayment period when the borrower first joined income-based repayment.
The time the borrower is permitted to repay the loan may exceed
The Department must repay or cancel any outstanding loan principal
and interest for borrowers after 25 years of repayment.
Borrowers currently repaying loans according to income-contingent
repayment or income-sensitive repayment plans will have the choice
to continue in their current plans or may participate in the program
created by this bill.
The Department must establish procedures to annually determine
borrowers' eligibility for the program, including verification
of a borrower's income and the amount of their loans.
Sec 401 Title IV – Loan Forgiveness
This legislation allows the Secretary of Education to cancel
the balance of any interest and principal due on any Federal Direct
Loan - including Direct Stafford, Direct PLUS, or Direct Consolidation
Loan - that is not in default for borrowers who:
- have made 120 monthly payments on a Direct Loan after October
1, 2007 as part of an income contingent repayment plan or a
standard repayment plan based on a 10-year repayment schedule
- are employed in a "public service job" and has been
employed in a public service job during the 120 payment period.
A public service job is defined as a full-time job in emergency
management, government, military service, public safety, law enforcement,
public health, public education, social work, public interest
law services, child care, public library sciences, or
any other job at an organization that is described in section
501(C)(3) of the Internal Revenue Code of 1986.
Please note this is valid only with Federal Direct Loans, such
as offered at Seattle University School of Law. However, if you
have FFELP Stafford loans or FFELP consolidated federal loans
(through a lender other than Direct Loans), you may reconsolidate
into a Direct Loan (www.loanconsolidation.ed.gov)
after July 1, 2008. Payments after that point would start to count
towards the 120 payments, if qualified.
You may be interested in reading the following pertinent article:
Federal Student Loan Repayment Assistance for Public Interest
Lawyers and Other Employees of Governments and Nonprofit Organizations,
36 Hofstra L. Rev. __, (forthcoming, Fall, 2007). Philip G. Schrag.
Please contact Student Financial Services at email@example.com
or (206) 398-4250 if you have any questions.