Student Loan Forgiveness Programs

Student Loan Forgiveness Programs

Order Code RL32516
CRS Report for Congress
Received through the CRS Web
Student Loan Forgiveness Programs
Updated July 14, 2006
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 was authorized by the
National Defense Education Act of 1958. It applied to National Defense Student
loans and authorized loan forgiveness for public school teachers. The federal
program succeeding the National Defense Student Loan program, the Perkins Loan
program, provides loan forgiveness for borrowers employed in specific public service
jobs. 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).
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.
The Deficit Reduction Act, P.L. 109-171, signed into law by the President on
February 8, 2006, included changes to pre-existing student loan forgiveness
programs. Among other things, P.L. 109-171 made permanent the temporary
expansion of loan forgiveness (up to $17,500) that was authorized for specific
teachers by P.L. 108-409.
Legislation to reauthorize the Higher Education Act, H.R. 609, which was
passed by the House on March 30, 2006, and S. 1614, which was reported by the
Senate Committee on Health, Education, Labor, and Pensions on November 17,
2005, also includes proposed changes to student loan forgiveness programs.
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 . . . . . . . . . . . . . . . . . . . . . 3
Loan Forgiveness for Child Care Providers . . . . . . . . . . . . . . . . . . . . . . 3
Expanded Loan Forgiveness for Teachers in P.L. 108-409 . . . . . . . . . . 4
Loan Forgiveness provisions in the Deficit Reduction Act,
P.L. 109-171 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Loan Forgiveness Provisions in H.R. 609 and S. 1614 . . . . . . . . . . . . . 5
Disaster Relief Loan Forgiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Federal Perkins Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Additional Large Federal Loan Forgiveness/Service Payback Programs . . . . . . 10
Programs for Federal Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
For Military Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
For Civilian Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
STEM Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Programs for Medical and Health Researchers and Professionals . . . . . . . . 11
State Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Policy Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
List of Tables
Table 1. Student Loan Forgiveness Programs
Administered by the U.S. Department of Education . . . . . . . . . . . . . . . . . . . 8

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 provided loan
forgiveness to borrowers for service as a full-time public school teacher.
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 and
service payback 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 often referred
to as “loan cancellation programs” or “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; the FFEL and DL programs combined provided an estimated $51.1 billion in
net new loans for borrowers in FY20062. Together, they constitute the nation’s
largest source of direct aid for educational expenses of postsecondary students.3
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 five-year
demonstration loan forgiveness program for child care providers that expired in
FY2003. These provisions apply to outstanding principal and accrued interest from
subsidized and unsubsididized Stafford loans borrowed through the FFEL and DL
programs.4 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 was 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 described in the text below and summarized in
Table 1.
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 PLUS loan volume is excluded here, because PLUS loans are not eligible for loan
forgiveness.
3 CRS Report RL30656, The Administration of Federal Student Loan Programs:
Background and Provisions, by Adam Stoll.
4 As well as portions of consolidation loans attributable to these underlying loans.

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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
$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.
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 (the final year for which
the program was authorized). 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 an annual rate of 20% of the outstanding loan
balance after each of the second and third consecutive years of service, and at an
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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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
forgiveness. ED estimates the total number of participants in the program at 154,
with approximately $900,000 in total loan forgiveness committed.6
Expanded Loan Forgiveness for Teachers in P.L. 108-409. P.L. 108-
409, the Taxpayer-Teacher Protection Act, temporarily expanded the student loan
debt that could 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)7 in elementary
schools, after five years of consecutive service in high poverty schools. This
legislation provided that this expanded loan forgiveness 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
applied only to new borrowers on or after October 1, 1998, who borrowed before
October 1, 2005.
Loan Forgiveness provisions in the Deficit Reduction Act, P.L. 109-
171. The Deficit Reduction Act, P.L. 109-171, signed into law on February 8, 2006,
includes changes to pre-existing student loan forgiveness programs. P.L. 109-171
makes permanent the temporary expansion of teacher loan forgiveness (up to $17,500
for specific teachers) authorized by P.L. 108-409. P.L. 109-171 also includes new
provisions specifying alternative certification provisions for loan forgiveness
eligibility for private school teachers who are exempt from state certification
requirements.8
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.
7 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
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.”
8 In addition, P.L. 109-171 provides up to three years of deferment of FFEL, DL and Perkins
loans for borrowers who are serving on active duty or National Guard duty during a war,
military operation, or national emergency. This provision applies to loans made on or after
July 1, 2001.

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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 for loan
forgiveness, and consequently, the amount of loans forgiven, will not be large until
FY2009. CBO projections indicate that between FY2006 and FY2015, as more
teachers become eligible, approximately $3 billion in teacher loan forgiveness would
be obligated (under both the $5,000 and $17,500 loan forgiveness programs).9
Loan Forgiveness Provisions in H.R. 609 and S. 1614. Both the House
and Senate have considered legislation that 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, passed by the House
on March 30, 2006, includes a new provision that would cancel the student loan
indebtedness for survivors of public servants and other victims, who are or become
deceased or permanently disabled as a result of the terrorist attacks on September 11,
2001. The spouse of an eligible public servant may have his or her own student loan
debt cancelled, as well as joint consolidation loan debt attributable to the eligible
public servant. Survivors (the spouse and/or parents) of other victims who are or
become deceased or permanently disabled as a result of the September 11, 2001,
attacks may have the portion of consolidation or PLUS loans incurred on behalf of
the eligible victim, cancelled.
In addition, H.R. 609 would authorize loan forgiveness (excluding consolidation
and PLUS loans) 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 highly
qualified teachers serving in low-income communities, 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 an eligible
preschool program or an elementary or secondary school; child welfare workers with
a degree in social work or a related field with a focus on serving children and
families; public service employees; specified medical specialists; and child or
adolescent mental health professionals. 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.
S. 1614, the Higher Education Amendments of 2005, reported by the Committee
on Health, Education, Labor, and Pensions on November 17, 2005, includes a new
provision that would forgive loan balances that remain after 120 payments by eligible
public sector employees repaying their DL loans (or related consolidation loan) on
an income contingent repayment plan. In order to be eligible, the borrower’s public
sector employment would need to be full-time and for the 10-year period during
9 For each year, CBO’s estimates reflect the total net present value of the projected loan
forgiveness, which teachers first eligible for the benefit in that year could potentially collect.

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which the borrower made the 120 payments. Eligible public sector jobs include
emergency management, government, public safety, law enforcement, public health,
and education (including early childhood education). Eligibility would also be
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.
Disaster Relief Loan Forgiveness. The Student Grant Hurricane and
Disaster Relief Act (P.L. 109-67) was signed into law by the President on September
21, 2005. P.L. 109-67 gives the Secretary of ED the authority to waive the
outstanding student aid due for students who: withdrew from school, resided in,
were employed in, or attended an institution of higher education (IHE) in an area that
was declared a major disaster by the President, or who withdrew because their
attendance was interrupted by the disaster.10 On November 11, 2005, ED issued a
letter announcing that, for students affected by a disaster, it was waiving the
requirement that students withdrawing from an IHE during a payment period or
period of enrollment repay 50% of any unearned grant funds not otherwise required
to be repaid by the IHE.11
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.12 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, Perkins borrowers who meet the criteria
for loan forgiveness are entitled to receive it. Those qualified for this loan
forgiveness, and the relevant periods of required service to amounts of debt forgiven,
are summarized in Table 1.13
10 For more on return of grant aid under Title IV of the HEA, see CRS Report RL31926,
Institutional Eligibility, by Rebecca Skinner. For more on assistance available to students
as a result of natural disasters, see CRS Report RL33089, Education and Training Issues
Related to Major Disasters, coordinated by Charmaine Mercer.
11 DCL ID: GEN-05-17, Notice of waiver of Title IV grant repayment for students affected
by a disaster. U.S. Department of Education, November 11, 2005. To be eligible for the
waiver the student must meet the following conditions: “The student was residing in,
employed in, or attending an institution that is located in an area in which the President has
declared that a major disaster exists; the student withdrew because of the impact of the
disaster on the student or the institution; and the student’s withdrawal occurred within the
academic year during which the designation as a major disaster occurred or during the next
succeeding academic year.”
12 CRS Report RL31618, Campus-Based Student Financial Aid Programs Under the Higher
Education Act, by David Smole.
13 Ibid. Perkins loans are also cancelled due to borrower death or disability, but ED is not
(continued...)

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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,
! 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.14
13 (...continued)
required to repay institutions for these loans.
14 Higher Education Act of 1965, Section 465 (20 U.S.C. §1087ee).

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Table 1. Student Loan Forgiveness Programs
Administered by the U.S. Department of Education
Stafford student loans (FFEL and DL)
Type of service
Qualifying 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).
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
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

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Perkins Student Loans
Type of service
Forgiveness period
Maximum forgiven
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 $595.9 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, $6.6 million, $48.9 million, $52.8 million and $122.9
million in loan principal has been forgiven, respectively.15 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.
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 and
language therapists.16
15 These data were provided by the U.S. Department of Education and reflect cumulative
cancellations as of June 30, 2004. Teacher and military cancellations prior to 1972 are not
included here.
16 See Senate report 109-218, p. 249, Higher Education Amendments of 2005.

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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., science, technology, engineering, mathematics, or 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);17 access to
educational resources; as well as assistance with loan repayment.18 Student loan
forgiveness programs constitute a small share of the educational assistance programs
available to military personnel.19
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.20
STEM Proposals
As discussed earlier in this report, P.L. 109-171, the Deficit Reduction Act of
2005, made permanent a pre-existing provision temporarily extending up to $17,500
in loan forgiveness for highly qualified teachers of math and science in secondary
schools after five years of consecutive service in high poverty schools.21 In addition,
17 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).
18 For detailed information on available assistance, including relevant links, see
[http://www.todaysmilitary.com].
19 For more information, see CRS Report RL33281, Montgomery GI Bill Education Benefits:
Analysis of College Prices and Federal Student Aid Under the Higher Education Act, by
Charmaine Mercer, Rebecca R. Skinner and Paul J. Graney; CRS Report RL33518, Army
Officer Shortages: Background and Issues for Congress, by Charles A. Henning; and CRS
Report RL33446, Military Pay and Benefits: Key Questions and Answers, by Charles A.
Henning.
20 CRS Report RL31102, Student Loan Repayment Program for Federal Employees, by
Lorraine Tong and Barbara Schwemle.
21 This $17,500 in loan forgiveness is also available for eligible special education teachers
(continued...)

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several bills have been introduced in the 109th Congress to address concerns about
a shortage of students, teachers, and other professionals in the fields of science,
technology, engineering, and mathematics. Several of these bills include proposals
that would create or expand loan forgiveness or service payback programs.22
Programs for Medical and
Health Researchers and Professionals
The following discussion provides examples of a few 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.23
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.24
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.25
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.26
21 (...continued)
and related specialists.
22 For more on proposals to increase the number of students, teachers and other professionals
in the areas of science, technology, engineering, and mathematics (STEM), see CRS Report
RL33434, Science, Technology, Engineering, and Mathematics (STEM) Education Issues
and Legislative Options, by Jeffrey J. Kuenzi, Christine M. Matthews, and Bonnie F.
Mangan.
23 For more information, see [http://www.lrp.nih.gov/].
24 For more information, see [http://nhsc.bhpr.hrsa.gov/].
25 CRS Report RL31090, Long-Term Care: Nursing and Paraprofessional Workforce
Issues, by Julie Lynn Stone.
26 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
(continued...)

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State Programs
Increasing numbers of student loan forgiveness and service payback programs
are also being offered by states.27 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.28
Teaching and medical fields were the occupations most frequently targeted; almost
70% of the participants were teachers.29 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
26 (...continued)
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.
27 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.)
28 For more information on state programs for teachers, see CRS Report RL32050, Teacher
Recruitment and Retention: Federal, State and Local Programs, by Jeffrey Kuenzi.
29 Kirshstein, et al., Workforce Contingent Financial Aid.

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completed only partial service.30 ... 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.31
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.32 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).33 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
30 Ibid.
31 Ibid.
32 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.
33 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.

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program to be more costly.34 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.
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.35
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 fulfill their service requirements.
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.36
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.
34 U.S. Government Accountability Office, National Health Service Corps: Opportunities
to Stretch Scarce Dollars and Improve Provider Placement, GAO/HEHS-96-28, Nov. 1995.
35 U.S. Government Accountability Office, Health Care Access: Programs for Underserved
Populations Could be Improved, GAO/T-HEHS-00-81, Mar. 23, 2000.
36 Kirshstein, et al., Workforce Contingent Financial Aid.

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As noted above, presently data on these programs’ effectiveness are limited.
Some outstanding questions for future research on these programs include acquiring
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).