Order Code RL32516
CRS Report for Congress
Received through the CRS Web
Student Loan Forgiveness Programs
Updated October 25, 2005
Gail McCallion
Specialist in Labor Economics
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress
Student Loan Forgiveness Programs
Summary
Student loan forgiveness and service payback programs provide financial
incentives in exchange for a specific work commitment. Loan forgiveness programs
repay a percentage of an employee’s student loan after service commences; service
payback programs cover a portion of a student’s school costs in return for an
agreement to work in a specific job for a specified period of time in the future. These
programs have one or more of the following four goals: to provide financial
assistance to students to help them with the costs of college, to entice individuals to
choose a particular occupation or field of specialization, to entice individuals to work
for a period of time in a certain job or underserved region, or to entice individuals to
remain in a high need occupation, region or underserved facility. Many bills that
would expand existing loan forgiveness, service payback programs or extend them
to additional occupational groups have been introduced in the 109th Congress.
The first major federal loan forgiveness program, the National Defense Student
Loan Program, was authorized by the National Defense Education Act in 1958. It
was a loan forgiveness program for public school teachers. Loan forgiveness
provisions currently applicable to Federal Family Education Loans and Direct Loans
were adopted in the 1998 reauthorization of the Higher Education Act of 1965, as
amended (HEA). These provisions are for a teacher loan forgiveness program as well
as a demonstration loan forgiveness program for child care providers. Loan
forgiveness is also available for Perkins Loans (low-interest loans made by
institutions of higher education to students with financial need) for borrowers who
work in specific public service jobs.
In addition to the U.S. Department of Education administered provisions, there
are federal loan forgiveness and service payback programs specific to particular
occupations or categories of borrowers, for example, the military and health
professions. States also offer many loan forgiveness and service payback programs.
A survey of 100 state programs in 2000-2001 indicated that 43 states had one or more
of these programs. The majority of financial aid administrators interviewed about
these programs for this survey reported that they were effective in meeting students’
financial needs and workforce needs. Nevertheless, concerns about the efficacy of
these programs were also expressed by financial aid administrators.
In the 108th Congress, legislation was passed (P.L. 108-409, the Taxpayer-
Teacher Protection Act of 2004) to temporarily expand student loan forgiveness to
$17,500 for highly qualified special education teachers working in elementary and
secondary schools, and for highly qualified mathematics and science teachers
working in secondary schools. The expanded student loan forgiveness amount
applied only to new borrowers on or after October 1, 1998, who borrowed before
October 1, 2005. In the 109th Congress, bills introduced to reauthorize the Higher
Education Act, H.R. 609 and S. 1614, would make those provisions permanent.
This report will be updated to reflect congressional action.
Contents
Department of Education: Student Loan Forgiveness Programs . . . . . . . . . . . . . 2
Federal Family Education Loans (FFEL) and William D. Ford Direct Loan
Program (DL) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Pre-Existing Loan Forgiveness for Teachers . . . . . . . . . . . . . . . . . . . . . 2
Expanded Loan Forgiveness for Teachers in P.L. 108-409 . . . . . . . . . . 3
Loan Forgiveness for Child Care Providers . . . . . . . . . . . . . . . . . . . . . . 4
Loan Forgiveness Provisions in H.R. 609 and S. 1614 . . . . . . . . . . . . . 5
Federal Perkins Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Additional Large Federal Loan Forgiveness/Service Payback Programs . . . . . . . 9
Programs for Federal Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
For Military Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
For Civilian Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Programs for Medical and Health Researchers and Professionals . . . . . . . . 10
State Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Policy Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
List of Tables
Table 1. Student Loan Forgiveness Programs Administered by the U.S. Department
of Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Student Loan Forgiveness Programs
Student loan forgiveness and service payback programs are generally instituted
to provide financial aid to students to make college more accessible, and to attract
individuals to serve in jobs or work in regions experiencing shortages. The first
major federal loan forgiveness program, the National Defense Student Loan Program,
was authorized by the National Defense Education Act in 1958. It was a loan
forgiveness program for public school teachers. Subsequently, federal loan
forgiveness provisions have expanded and have been extended to new categories of
borrowers. Many loan forgiveness proposals have been introduced in recent
Congresses, as well as in the current Congress.
This report will provide an overview of the current major federal loan
forgiveness programs administered by the U.S. Department of Education (ED). It
will also briefly summarize some of the other major federal loan forgiveness
programs. Finally, it will discuss policy issues and legislation.
Loan forgiveness and service payback programs are variations of work-
contingent student financial aid:
! Service payback programs cover all or a portion of a student’s
school costs if the student agrees to work for a specific period of
time in a specified field or job after completing his/her education.
These programs pay for a student’s costs (or a portion thereof) while
he/she is in school. Recipients in these programs are required to
provide service in return for this assistance; they agree to provide
this service in advance (sometimes years in advance) of providing
the service. There is generally a financial penalty for students who
fail to meet the terms of their agreement.
! Loan forgiveness programs repay a percentage of a former student’s
educational debt in exchange for work in a designated job. These
programs pay off a student’s loan (or a portion thereof) after he/she
starts working in a specified job. Recipients’ loans (or a portion
thereof) may be repaid on a graduated basis over a period of years
during which they provide service, or not until the end of a specified
period of service.
Terminology for these programs can be confusing. In some cases the term loan
forgiveness is used to refer to both loan forgiveness and service payback programs.
These programs are also described as work-contingent financial aid because both are
provided in exchange for a student or an employee providing (or promising to
provide) specific services. Additionally, service payback programs are sometimes
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called scholarship programs because they provide financial aid during college.1
Programs referred to in this report as “loan forgiveness programs” are sometimes
referred to as “loan repayment programs” elsewhere. To attempt to minimize
confusion, for purposes of this report, when these programs are being discussed in
general, they will be described as “loan forgiveness and service payback programs”;
when specific programs are discussed, they will be described as either “loan
forgiveness” or “service payback programs.” These distinctions become relevant in
considering the potential of each type of program to achieve specific policy goals, as
their efficacy in accomplishing these goals may differ. Most current legislative
proposals for ED programs are for loan forgiveness programs, and the currently
authorized ED programs discussed in this report are loan forgiveness programs.
Department of Education
Student Loan Forgiveness Programs
Federal Family Education Loans (FFEL)
and William D. Ford Direct Loan Program (DL)
The largest student loan programs are the FFEL and DL programs administered
by ED. In FY2004, the FFEL program provided 9,550,000 in new loans that
averaged approximately $4,111 each; the DL program provided 3,001,000 new loans
that averaged $4,279 each. Together, they constitute the nation’s largest source of
direct aid for educational expenses of postsecondary students.2 Loan forgiveness
provisions currently applicable to FFEL and DL loans were adopted in the 1998
reauthorization of the Higher Education Act of 1965, as amended (HEA). These
provisions are for a teacher loan forgiveness program as well as a demonstration loan
forgiveness program for child care providers. These provisions apply to outstanding
principal and accrued interest from subsidized and unsubsididized Stafford loans
through the FFEL and DL programs.3 The teacher loan forgiveness program is an
entitlement program; hence qualified teachers who apply for the forgiveness will
receive it. However, the loan forgiveness program for child care providers is subject
to appropriations. Under both programs, ED is obligated to repay loan holders for
student loans forgiven. Those qualified for this loan forgiveness, and the relevant
ratios of required service to amounts of debt forgiven, are summarized in Table 1.
Pre-Existing Loan Forgiveness for Teachers. The teacher loan
forgiveness programs offered through FFEL and DL prior to the passage of P.L. 108-
409, The Taxpayer-Teacher Protection Act of 2004, provide qualified teachers up to
1 However, when such a program includes a subsequent work obligation, and requires the
recipient to repay the loan, and possibly pay a penalty, for failure to meet this obligation,
it is really a service payback program.
2 CRS Report RL30656, The Administration of Federal Student Loan Programs:
Background and Provisions, by Adam Stoll.
3 As well as portions of consolidation loans attributable to these underlying loans.
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$5,000 in total loan principal and interest forgiveness after five consecutive years of
full-time teaching (HEA, Sections 428J and 460). Teaching is considered
consecutive even if there is a break in teaching, if the break is due to a return to
college for teaching related education, leave under the Family and Medical Leave
Act, or a call to active military duty of more than 30 days.
Teaching must be in a low-income public or private non-profit school which is
in a district eligible for Elementary and Secondary Education Act (ESEA) Title I-A
funding. (A low-income school is defined as one in which the percentage of children
from low-income families enrolled in the school exceeds 30% of total enrollment.)
Only new borrowers as of October 1, 1998, with no outstanding loan balances, are
eligible for this loan forgiveness.
P.L. 108-409 includes a new requirement that teachers who begin their
qualifying service on or after the date of enactment of the law (October 30, 2004),
must be highly qualified (as defined in Section 9101 of the Elementary and
Secondary Education Act of 1965) to be eligible for this $5,000 in loan forgiveness.
However, the law states that no teacher who began eligible service prior to enactment
of P.L. 108-409 will be disqualified from receiving the $5,000 in loan forgiveness.
The pre-existing criteria for eligibility (prior to P.L. 108-409) states that secondary
school teachers must be teaching in a subject area relevant to their academic major
as certified by the chief administrative officer of their school; and elementary school
teachers must have demonstrated (as certified by the chief administrative officer of
their school) knowledge in reading, writing, math, and other areas of the elementary
curriculum.
Because teachers must accrue five years of consecutive teaching before they are
entitled to receive loan forgiveness, and they must be a new borrower as of October
1, 1998, it is anticipated that the numbers of teachers who are eligible, and
consequently, the amount of loans forgiven, will not be large until FY2009. ED data
indicate that between FY2001 and FY2003, approximately $11 million in teacher
loans were forgiven. CBO projections indicate that between FY2005 and FY2014,
as more teachers become eligible, approximately $2.3 billion in teacher loans would
be forgiven under the loan forgiveness provisions in effect prior to the enactment of
P.L. 108-409. However, the new requirement in P.L. 108-409 that teachers be highly
qualified will limit somewhat the number of teachers eligible for the $5,000 in loan
forgiveness. CBO estimates that this change will generate a savings of $35 million
in 2005 and negligible amounts thereafter.
Expanded Loan Forgiveness for Teachers in P.L. 108-409. P.L. 108-
409 temporarily expanded the student loan debt that can be forgiven by ED (up to
$17,500) for highly qualified teachers of mathematics and science in secondary
schools, and for special education and related specialists (certified by the chief
administrative officer of their school)4 in elementary schools, after five years of
4 The entire provision in P.L. 108-409 states that the elementary school or secondary school
teacher must be one: “who, as certified by the chief administrative officer of the public or
non-profit private elementary school or secondary school in which the borrower is
(continued...)
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consecutive service in high poverty schools. This legislation provides that this
expanded loan forgiveness will be financed by savings obtained from temporary
restrictions on lender yields on student loans made from the proceeds of tax-exempt
bonds.
The expanded student loan forgiveness amount applies only to new borrowers
on or after October 1, 1998, who borrow before October 1, 2005. The Congressional
Budget Office estimates that this expanded loan forgiveness will cost $266 million
between 2005-2009, with the largest cost ($175 million) occurring in 2005. This
additional cost would be more than offset by savings obtained by temporary limits
on lender yields. CBO estimates that the net result on federal outlays of the changes
resulting from enactment of P.L. 108-409, would be a decrease of $19 million over
the 2005-2009 period.
Loan Forgiveness for Child Care Providers. The 1998 reauthorization
of the HEA also incorporated a demonstration loan forgiveness program for child
care providers. The program was authorized for five years with $10 million
authorized for its first year, FY1999. The program received no appropriations in the
first two years after its authorization (1999 and 2000); it subsequently received $1
million in funding in each of FY2001, FY2002, and FY2003. Only new borrowers
as of October 7, 1998 (those with no outstanding loan balances), were eligible for this
loan forgiveness. Eligible child care providers were required to have a degree in
early childhood education and work in a child care facility that meets state or local
requirements, provides child care services for children age five or younger, and
provides service in a low-income community.5
Child care providers were eligible for loan forgiveness after the second
consecutive year of employment at the annual rate of 20% of the outstanding loan
balance after each of the second and third consecutive years of service, and at the
annual rate of 30% of the loan balance after each of the fourth and fifth consecutive
years of service.
If appropriations were not sufficient to fund all eligible applicants in a given
fiscal year, loan forgiveness was to be given on a first-come first-served basis, with
priority given to borrowers who received forgiveness under the program in the prior
fiscal year. However, in practice, the full $3 million in funding was not distributed
because there were insufficient numbers of eligible child care workers. In addition,
some of those who were granted loan forgiveness did not complete five years of
consecutive service, and consequently were not eligible for a full five years of loan
4 (...continued)
employed, is teaching children with disabilities that correspond with the borrower’s special
education training and has demonstrated knowledge and teaching skills in the content areas
of the elementary school or secondary school curriculum that the borrower is teaching.”
5 A low-income community is defined as one in which 70% of the population earns less than
85% of the state median household income.
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forgiveness. ED estimates the total number of participants in the program at 154,
with approximately $900,000 in total loan forgiveness committed.6
Loan Forgiveness Provisions in H.R. 609 and S. 1614. Both the House
Committee on Education and the Workforce, and the Senate Health, Education and
Labor Committee have ordered reported legislation, H.R. 609 and S. 1614,
respectively, which would reauthorize the Higher Education Act. Both bills include
new student loan forgiveness provisions.
H.R. 609, the College Access and Opportunity Act of 2005, would make
permanent the expanded loan forgiveness (up to $17,500) authorized by P.L. 108-
409, and it would extend this forgiveness to credentialed reading teachers who serve
in high-poverty schools. H.R. 609 also includes a new provision that would cancel
the student loan indebtedness for survivors of victims of the September 11, 2001
attacks. And it would provide an alternative certification method for individuals
deemed highly qualified to teach in private schools.
In addition, H.R. 609 would authorize loan forgiveness of up to $5,000, subject
to appropriations, for service in areas of national need. This loan forgiveness would
be available for early childhood educators, librarians, highly qualified teachers of
bilingual education, and first responders (firefighters, police officers, emergency
medical technicians) serving in low income communities. Loan forgiveness would
also be available for nurses serving in clinical settings or as teachers in an accredited
school of nursing; specified foreign language specialists; speech-language
pathologists with a graduate degree serving in eligible schools; and child welfare
workers with a degree in social work or a related field with a focus on serving
children and families. The Secretary of the U.S. Department of Education would be
granted the authority to designate additional individuals (who have completed a
baccalaureate or advanced degree in a relevant area) to serve in areas of national
need.
Finally, H.R. 609 would increase the total percentage of Perkins loan amounts
eligible for forgiveness from 50% to 100% for active-duty military personnel.
S. 1614, the Higher Education Amendments of 2005, would also make
permanent the expanded loan forgiveness (up to $17,500) authorized by P.L. 108-409
for highly qualified teachers of mathematics and science in secondary schools, and
for special education and related specialists.
S. 1614 includes a new provision that would forgive loan balances that remain
after 120 payments for eligible public sector employees repaying their DL loans on
an income contingent repayment plan. In order to be eligible, the borrower’s public
sector employment must be full-time and span the 10-year period during which the
borrower made the 120 payments. Eligible public sector jobs include emergency
management, government, public safety, law enforcement, public health, and
6 This is the full amount that will be forgiven if borrowers maintain their eligibility.
However, because it will be paid out over a five-year period , the entire amount has not yet
been disbursed.
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education (including early childhood education). Eligibility is also extended to
lawyers employed by a federal, state, or local government agency; and to employees
working for an organization that is exempt from taxation under Section 501(a) of the
Internal Revenue Code of 1986.
Finally, S. 1614 would extend Perkins loan forgiveness to additional categories
of borrowers who meet eligibility criteria and work as librarians, prekindergarten or
child care workers, full-time faculty at tribal colleges or universities, and speech
language therapists.
Federal Perkins Loans
Perkins Loans are low-interest loans made by institutions of higher education
to students with financial need. The program was incorporated into the Higher
Education Act in the Educational Amendments of 1972 (P.L. 92-318). Federal
money is allocated by formula to institutions, and is used by institutions, in
combination with an institutional match, to capitalize revolving loan funds in order
to make Perkins loans.7 Perkins Loan forgiveness is available for borrowers who
work in specific public service jobs. Although the amount available for granting
Perkins loans is subject to appropriations, as well as repayments into its revolving
loan funds, Perkins borrowers who meet the criteria for loan forgiveness are entitled
to receive it. Those qualified for this loan forgiveness, and the relevant ratios of
required service to amounts of debt forgiven, are summarized in Table 1.8
Borrowers eligible for forgiveness of their Perkins loan due to public service
include:
! Full-time teachers employed in public or nonprofit elementary or
secondary schools in districts eligible for ESEA Title I-A funding,
where the percentage of children from low-income families enrolled
in the school exceeds 30% of total enrollment,
! Full-time Head Start staff,
! Full-time special education teachers in public or nonprofit
elementary or secondary schools (including teachers of infants and
toddlers) or qualified professional providers of early intervention
services under the Individuals with Disabilities Education Act
(IDEA),
! Members of the Armed Forces for service in an area of hostilities,
! Volunteer service under the Peace Corps Act or the Domestic
Volunteer Service Act of 1973,
! Full-time law enforcement or corrections officers (including
prosecuting attorneys, but not public defenders), for service in local,
state or federal law enforcement or corrections agencies,
7 CRS Report RL31618, Campus-Based Student Financial Aid Programs Under the Higher
Education Act, by David Smole.
8 Ibid.. Perkins loans are also cancelled due to borrower death or disability, but ED is not
required to repay institutions for these loans.
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! Full-time teachers of math, science, foreign languages, bilingual
education, or other fields determined to have a shortage by the state
educational agency,
! Full-time nurses or medical technicians providing health services,
and
! Full-time employees of public or private nonprofit child or family
service agencies who provide or supervise service for high-risk
children from low-income communities.9
Table 1. Student Loan Forgiveness Programs
Administered by the U.S. Department of Education
Stafford student loans (FFEL and DL)
Type of service
Forgiveness period
Maximum forgiven
Highly qualified secondary school teacher
$17,500 after five years of
$17,500
of science or math and highly qualified
qualifying service
elementary or secondary school special
education teacher in school serving low-
income children (For new borrowers on or
after Oct. 1, 1998 who have borrowed
prior to Oct. 1, 2005).
Eligible elementary or secondary school
$5,000 after five years of
$5,000
teacher in school serving low-income
qualifying service
children (for new borrowers on or after
Oct. 1, 1998.) Teacher who commences
eligible service on or after Oct. 30, 2004,
must be highly qualified.
Child Care Provider Demonstration — for
20% for each of years two
Up to 100%
providers serving in child care facility
and three;
serving low-income community (For new
30% for each of years four
borrowers on or after Oct. 7, 1998).
and five
Perkins Student Loans
Type of service
Forgiveness period
Maximum forgiven
Full-time elementary or secondary school
15% for each of years one
Up to 100%
teacher in a school serving low-income
and two;
students.
20% for each of years three
and four;
30% for year five and each
successive year
Full-time Head Start staff
15% for each year of
Up to 100%
service
Full-time special education teacher or
15% for each year of
Up to 100%
qualified provider of early intervention
service
services for the disabled.
9 Higher Education Act of 1965, Section 465 (20 U.S.C. §1087ee).
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Perkins Student Loans
Type of service
Forgiveness period
Maximum forgiven
Member of Armed Forces in area of
12½% for each of years
Up to 50%
hostilities
one through four
Vista or Peace Corps volunteer
15% for each of years one
Up to 70%
and two;
20% for each of years three
and four
Full-time law enforcement or corrections
15% for each of years one
Up to 100%
officer
and two;
20% for each of years three
and four;
30% for fifth year and each
successive year
Full-time teacher in shortage area
15% for each of years one
Up to 100%
and two;
20% for each of years three
and four;
30% for fifth year and each
successive year
Full-time nurse or medical technician
15% for each of years one
Up to 100%
and two;
20% for each of years three
and four;
30% for fifth year and each
successive year
Full-time employee of provider of services
15% for each of years one
Up to 100%
to high-risk children and families in low-
and two;
income communities.
20% for each of years three
and four;
30% for fifth year and each
successive year
Source: HEA, Sections 465, 428J, 460, and 428K.
Since 1972 the program has forgiven more than $524.8 million and $0.7 million
in loan principal for teachers and the military, respectively. For the newer Perkins
Loan forgiveness categories: volunteer service, law enforcement, early intervention
and nurse/medical technicians, $5.4 million, $34.8 million, $33.2 million and $72.9
million in loan principal has been forgiven, respectively.10 ED is obligated to
reimburse institutions for Perkins Loans cancelled due to eligible public service by
the borrower. ED reimburses institutions for loan cancellations to the extent funded
by appropriations. Data are not currently available on the extent to which
appropriations have been sufficient to cover outstanding obligations.
10 These data were provided by the U.S. Department of Education and reflect cumulative
cancellations as of June 30, 2002. Teacher and military cancellations prior to 1972 are not
included here.
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Additional Large Federal Loan
Forgiveness/Service Payback Programs
This section briefly summarizes some of the other major federal student loan
forgiveness and service payback programs. These programs are limited to specific
groups of employees (e.g., federal employees) or to those training or working in
specific occupations (e.g., medical shortage occupations). Each section includes
references or links for more information about these programs.
Programs for Federal Employees
For Military Employees. The military has an extensive array of programs
that can help students with college costs in return for military service. These
programs include funds to assist with education expenses and full-scholarship
programs (for example, Service Academies and ROTC scholarships);11 access to
educational resources; as well as assistance with loan repayment.12
Student loan forgiveness programs constitute a small share of the educational
assistance programs available to military personnel.13 An example of a loan
forgiveness program available to eligible borrowers is the Army’s College Loan
Repayment Program which will forgive one-third of approved student loans for each
year of full-time duty served, up to a maximum of $65,000. The Navy’s Loan
Repayment Program also offers a loan forgiveness program for up to $65,000 for
full-time duty soldiers who have no prior military service, a high school diploma and
a qualified loan. The Air Force College Loan Repayment Program offers up to
$10,000 in loan forgiveness to eligible new recruits.
For Civilian Employees. Federal agencies may use loan forgiveness to
recruit new employees — agencies may pay up to $10,000 per year, and $60,000 in
total, toward an employee’s student debt. In return, the employee must agree to work
for the agency for at least three years.14
11 See Rebecca Kilburn and Beth Asch, eds., Recruiting Youth in the College Market:
Current Practices and Future Policy Options (Santa Monica, CA: RAND National Defense
Research Institute, 2003).
12 For detailed information on available assistance, including relevant links, see
[http://www.todaysmilitary.com].
13 For more information on Department of Defense personnel issues, see CRS Issue Brief
IB10089, Military Pay and Benefits: Key Questions and Answers, by Robert Goldich; and
CRS Report RL32151, DOD Transformation Initiatives and the Military Personnel System:
Proceedings of a CRS Seminar, by Lawrence Kapp.
14 CRS Report RL31102, Student Loan Repayment Program for Federal Employees, by
Lorraine Tong and Barbara Schwemle.
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Programs for Medical and
Health Researchers and Professionals
The following discussion provides examples of some of the many loan
forgiveness and service payback provisions available to qualified individuals. The
National Institutes of Health has several loan forgiveness programs (both extramural
and intramural), to help attract individuals to research careers. In exchange for a two-
year work commitment (of at least 20 hours per week), NIH will repay up to a total
of $70,000 of a researcher’s qualified education debt.15
The National Health Service Corps (NHSC) has both loan forgiveness and
service payback programs to encourage health professionals to work as primary
health providers in selected health professional shortage areas, as identified by the
Department of Health and Human Services. Recipients selected for the loan
forgiveness program must sign a contract agreeing to provide two years of clinical
service in the shortage area. The NHSC will pay up to $50,000 of outstanding
qualified student loans for the first two years of service.16
The Nurse Reinvestment Act (P.L. 107-205), signed into law on August 1, 2002,
established a service payback program which provides a scholarship to nursing
students in exchange for a commitment to work two years in a healthcare facility in
a critical nursing shortage area. In addition, it established a loan forgiveness program
for nurses who agree to work as nursing faculty for a period of time.17
There are also federal programs that provide loan forgiveness after the
completion of a specified term of service. Examples include programs for
AmeriCorps, the National Civilian Corps and VISTA.18
15 [http://www.lrp.nih.gov/].
16 [http://nhsc.bhpr.hrsa.gov/].
17 CRS Report RL31090, Long-Term Care: Nursing and Paraprofessional Workforce
Issues, by Julie Lynn Stone.
18 Members of AmeriCorps, the National Civilian Corps, and Volunteers in Service to
America (VISTA) who complete a term of service, are eligible for an education award
through the National and Community Service Act of 1990. This education award may be
used toward college expenses or to repay qualified student loans. The award is $4,725 for
a year of full-time service with lesser awards available for part-time service. VISTA
members may choose the education award or a lump sum stipend that accrues at the rate of
$100 for each month of service. CRS Report RL30186, Community Service: A Description
of AmeriCorps, Foster Grandparents, and Other Federally Funded Programs, by Ann
Lordeman.
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State Programs
Increasing numbers of student loan forgiveness and service payback programs
are also being offered by states.19 A survey of 100 state programs in 2000-2001,
published by the Lumina Foundation for Education, indicated that 43 states had one
or more of these programs. Seventy-five percent of these programs (and 90% of
participants) were service payback programs. However, since 1998, state loan
forgiveness programs have been growing faster than service payback programs.20
Teaching and medical fields were the occupations most frequently targeted; almost
70% of the participants were teachers.21 Academic merit was the most common
criterion for choosing participants for service payback programs; financial need was
the second. State service payback programs often require participants to be a state
resident whereas loan forgiveness programs do not typically require participants to
be a state resident.
The majority of financial aid administrators interviewed about these programs,
for the Lumina survey, reported that they were generally effective in meeting
students’ financial needs and workforce needs. Nevertheless, concerns about the
efficacy of these programs were also expressed by student financial aid
administrators. Administrators also reported that they believed loan forgiveness
programs were lower risk than service payback programs, since service was provided
each year before forgiveness was granted, and because there were not the
administrative costs of tracking borrowers throughout school and the subsequent
period of service.
The authors of this survey found state tracking systems were inconsistent, and
states had little data available on the programs’ efficacy:
Some programs knew the number of participants with current obligations but
could not separate those meeting the workforce obligation from those repaying
the financial assistance. Other programs could not distinguish the number of
students who completed their service obligation from the number of students who
completed only partial service.22 ... Despite the proliferation in and variety of
these programs, however, states have done little research to determine whether
these types of financial aid programs are an effective way of either providing
financial assistance to students or attracting workers to occupations that are
experiencing shortages.23
19 Rita Kirshstein, Andrea Berger, Elana Benatar and David Rhodes, Workforce Contingent
Financial Aid: How States Link Financial Aid to Employment, American Institutes for
Research and the Lumina Foundation for Education, Feb. 2004. (Hereafter cited as
Kirshstein et al., Workforce Contingent Financial Aid.)
20 For more information on state programs for teachers, see CRS Report RL32050, Teacher
Recruitment and Retention: Federal, State and Local Programs, by Jeffrey Kuenzi.
21 Kirshstein, et al., Workforce Contingent Financial Aid.
22 Ibid.
23 Ibid.
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Policy Issues
Loan forgiveness and service payback programs generally have one or more of
the following four goals: to provide financial assistance to students to help them
with the costs of college, to entice individuals to choose a particular occupation or
field of specialization, to entice individuals to work for a period of time in a certain
job or underserved region, or to entice individuals to remain in a high need
occupation, region or underserved facility.
Past research has examined the efficacy of loan forgiveness and service payback
programs as a way of achieving these goals.24 The Government Accountability
Office (GAO) has issued several reports and provided testimony on loan forgiveness
and service payback programs intended to attract health professionals to serve in a
shortage area. In a 1974 report the GAO examined the efficacy of a program of loan
forgiveness called the Health Profession Student Assistance Program (the program
is no longer in existence in the form evaluated by the GAO).25 The GAO found this
particular program, with the loan forgiveness provisions in effect at the time of the
evaluation, was not effective on influencing where graduates set up their practices.
According to the GAO, it was not effective because most students were not aware the
loan forgiveness was available, and because those that were, did not consider the
forgiveness sufficient to outweigh the disadvantages of the required service.
In subsequent work, the GAO has examined the strengths and weaknesses of
loan forgiveness versus service payback provisions. In response to a congressional
request, the GAO compared the relative costs and benefits to the federal government
of the National Health Service Corps loan forgiveness and service payback programs.
The GAO did not examine the efficacy of these programs in general, but in
contrasting the costs and benefits of these two programs under the specific
circumstances of the National Health Service Corps, it found the service payback
program to be more costly.26 The GAO found the administrative costs in the National
Health Service Corps service payback program were greater than those in the loan
forgiveness program because students must be tracked through college, and
subsequently through their performance of service. This is in contrast to loan
forgiveness programs where forgiveness is provided after service, and where the
employee has the responsibility of applying for loan forgiveness. As a result,
administrative costs are lessened.
24 L.E. Zubrow, “Is Loan Forgiveness Divine? Another View,” George Washington Law
Review, vol. 59, no. 3 (1991). For a literature review, see Westat Human Service Group,
Loan Forgiveness in Postsecondary Education: A Review of Recent Legislation and
Relevant Literature, prepared for the Office of Policy and Planning, U.S. Department of
Education, Jan. 1993.
25 U.S. Government Accountability Office, Congressional Objectives of Federal Loans and
Scholarships To Health Professions Students Not Being Met, GAO/Report No. B-164031-2,
1974.
26 U.S. Government Accountability Office, National Health Service Corps: Opportunities
to Stretch Scarce Dollars and Improve Provider Placement, GAO/HEHS-96-28, Nov. 1995
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Additionally, the GAO found that loan forgiveness recipients were more likely
to complete their service commitment and to continue service after their obligation
had expired. Loan forgiveness programs minimize the risk that someone will commit
to a particular major to qualify for financial aid, but will not continue in the field or
perform their required service.27
However, service payback programs may have advantages as a financial aid
program. Because these programs provide aid to students during college as expenses
occur, they may serve students who otherwise could not attend. Thus, they may
broaden the pool of potential recipients to include less affluent students. This may
partly explain the attraction of these programs in states, where, in general, only state
residents are eligible to participate in service payback programs. As a consequence,
the potentially higher costs may be offset by the fact that the benefits accrue to state
residents, and the recipients remain in the state to provide their service.
The Lumina study (discussed earlier) is a recent examination of state loan
forgiveness and service payback programs. It did not try to ascertain the efficacy of
loan forgiveness and service payback programs in achieving states’ workforce or
financial aid goals, however, as noted, it did raise concerns about the lack of
available evidence on this issue:
... we really do not know whether these programs are the best way to help
individuals, whether currently enrolled in school or repaying loans, cover
educational expenses. Also, we really do not know whether programs
themselves are helping reduce workforce shortages or whether those accepting
financial assistance would have worked in the occupation or geographic areas
without the incentive of loan forgiveness or repayment.28
Over time, as loan forgiveness and service payback programs have become more
widespread and their popularity has risen — policy discussions have become more
focused on the fine-tuning of loan forgiveness and service payback provisions to best
meet the needs of the targeted group, job, or region.
Perhaps in part due to the potential advantages of loan forgiveness programs in
terms of cost and in retaining individuals in specific jobs, occupations, or regions,
most ED administered programs and most current legislative proposals are for loan
forgiveness programs. Elementary and secondary teachers, in particular, are the
intended recipients of these programs, but many other occupational groups, including
armed services personnel, public servants, public defenders, nurses, Head Start
teachers and early childhood teachers, mental health professionals, families of public
safety officers, and many others, are included in proposals that have been introduced
in the 108th Congress.
As noted above, presently data on these programs’ effectiveness are limited.
Some outstanding questions for future research on these programs include acquiring
27 U.S. Government Accountability Office, Health Care Access: Programs for Underserved
Populations Could be Improved, GAO/T-HEHS-00-81, Mar. 23, 2000.
28 Kirshstein, et al., Workforce Contingent Financial Aid.
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more data on the extent to which loan forgiveness or service payback recipients
would have taken the targeted job irrespective of the program, the extent to which
participants remain in jobs after the expiration of the loan forgiveness or service
payback program, how the efficacy of these programs compares to other forms of
financial aid, and the extent to which these programs may be divisive when there are
similar individuals working in similar jobs, but only some are eligible for loan
forgiveness (in effect, creating a situation where one employee is paid more than
another for the same work).