Kiss those student loans goodbye

By BusinessWeek

Shawn Agyeman was down on his luck last fall, having just lost his job as a research assistant at the University of Pittsburgh, his alma mater. With looming monthly student loan payments of around $200 a month hanging over his head, the recent college graduate was starting to worry about how he'd meet his debt obligations, fearful that creditors would harass his parents -- who co-signed his loans -- if he couldn't come up with the money.

Then he got a phone call from the director of a new grassroots nonprofit that Agyeman says changed his life. Raymar Hampshire, co-founder of the volunteer group SponsorChange.Org, presented Agyeman with a tempting offer: volunteer in the local Pittsburgh community several hours a week and receive a stipend to help to cover his looming student loan payments.

"When I heard about it, I said: 'I'd almost be a fool not to do this,'" says Agyeman, 25, who signed up for the pilot program in the spring of 2009 and will be doing it again this fall, with plans to earn $1,000 for his efforts. "I jumped all over it."

Agyeman is one of thousands of people saddled with student loan debt who are looking for innovative ways to meet their monthly payments. Their plight has become even more severe as recent college graduates lose their jobs or have trouble landing one. They run the risk of not being able to pay back their student loans , and could even default on them. Fortunately, a raft of programs has emerged in the past several months that can help students and recent graduates either make their student loan debt more manageable or, in some cases, get the loans partially or completely forgiven.

Some of these programs are oriented toward specific careers -- such as teaching or nursing -- while others are open to recent graduates who meet certain income and eligibility requirements. Still others are open to just about anyone. Some programs, such as SponsorChange.org, help graduates repay a portion of their student debt. Other programs help students -- both graduate and undergraduate -- avoid student loan debt entirely.

Raising awareness

Mapping out a plan to take advantage of those options isn’t always as easy. Even learning about them can be difficult. Many students aren't aware that some of these programs exist, and, as a result, they may take out hefty private loans that they could have avoided with a little strategic planning, says Edie Irons, a spokeswoman for the Project on Student Debt, a nonprofit that raises awareness about financial aid.

Irons recommends that students mapping out their education paths learn as much as they can about the different types of loan forgiveness programs available before taking out any new loans. Keep in mind: Most of these loan programs apply only to federal student loans; very few private loans qualify.

"People should definitely plan ahead and learn about the loan forgiveness programs that are out there," Irons says. "Be sure that you are in a position yourself to qualify for them and then, if you can make it work, go for it."

Here's a roundup of debt-reduction strategies for recent graduates, current students and those considering going back to school:

Volunteer

There are a number of volunteer programs that help people pay off their student loans, though most require a long-term commitment. Such programs could be a good short-term option for college graduates who have been unable to find a job, says Mark Kantrowitz, a student loan expert who runs FinAid.org, a provider of student aid information. "If you're unemployed right now, you might as well volunteer and get a little bit of money to pay back your student loans," he says.

One of the best-known volunteer options is AmeriCorps, a national network of service programs, which requires students to volunteer for a year full time. In exchange, they get a small living stipend and, when the year is up, an education award of $4,725 that can be applied to student loan debt or future education programs.

AmeriCorps has seen a surge in popularity, receiving 177,099 online applications between November 2008 and July 2009, a 203% increase over the same period a year ago, says spokeswoman Siobhan Dugan. "We have seen the interest increase phenomenally," says Dugan, who adds that the spike is likely due to a combination of factors, including the economy and President Barack Obama's call-to-service campaign.

Another popular program is the Peace Corps, which requires volunteers to make a two-year commitment to serve in a foreign country. Unlike AmeriCorps, the Peace Corps does not provide a student loan payment award. However, it does allow participants under several federal loan programs to defer their loan payments during their service. Those with federal Perkins loans are eligible for a partial cancellation benefit, starting at 15% for one year of service and up to 70% for four years. Another perk? The program provides participants with a $6,000 readjustment allowance after the two-year term of service is completed, a portion of which can be used to repay student loan debt, according to the Peace Corps Web site.

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If you don't have the time or resources to devote to a year or two of full-time volunteer work, look for local programs that can help you pay off your student loan debt through volunteering. For example, the SponsorChange.Org program in Pittsburgh allows working young professionals to volunteer during their free time, in exchange for student loan stipends paid for by donors. To be eligible, students must have a bachelor's degree and proof of student loan debt (participants have, on average, $20,000 of debt) and must fill out an online profile. The program puts "volunteer fellows" in touch with local nonprofits -- which pay a fee for the service -- pairing up former students with organizations that meet their interests and providing them with leadership training. This fall, 10 fellows will volunteer for 50 hours over a four-month period, earning $1,000 each. "It's sort of a win-win situation for both the nonprofit and the young professional," says Hampshire, of SponsoredChange.org.

Andrea Proie, 26, who works as a hydrogeologist in Pittsburgh, graduated from the University of Pittsburgh in 2006 with about $40,000 in student loan debt. She did the SponsorChange.Org pilot program in April, serving as a volunteer manager at a local day camp, wellness center and senior citizen home, earning about $400. As a fellow in the program this fall, she expects to take in an additional $1,000, which she will put directly to her loan payments. "I like the feeling of helping people, so being able to go out and volunteer and get the added benefit of having your student loans paid back is just awesome," she says.

Hampshire says his program, which is currently available only in Pittsburgh, is one that can eventually be replicated in major metropolitan areas across the country. "The student loan stipend is a big motivator," he says.

Continued: Become a teacher

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