New Loan Repayment Program For Unemployed Graduates

By Staff
August 17, 2009

A new program aims to assist unemployed college graduates who cannot repay their student loans.

USA Today reports that last week, BridgeSpan Financial introduced SafeSmart, which provides interest-free lines of credit that borrowers can use to repay federal Stafford loans for 36 months up to five years after graduation. The program costs $40 to $60 per $1,000 of student debt, and graduates must be unemployed or have loan payments that exceed 10 percent of their income to qualify.

"Going to college is one of the best investments you can make. We want to take the fear out of borrowing," explained Carlo Salerno, principal at BridgeSpan Financial, who was quoted in Inside Higher Ed. "If you want to go to college, cost shouldn't be a barrier to realizing one's potential."

The five-year window after graduation during which borrowers can access the free line of credit can be extended for students who return to school or join the Peace Corps. A borrower whose financial situation improves after accessing SafeSmart's line of credit has another five years to repay the interest-free loan.

"The neat thing about this product is that no one has thought of this before," said Brett Lief, president of the National Council of Higher Education Loan Programs and a member of SafeStart's advisory board, who was quoted in Inside Higher Ed. "I've been in student aid for 30-odd years and never seen anything reach this stage of maturity. It's a possible game changer in terms of how defaults are moved in this country."

Yet others were more skeptical about the benefits of the program, and noted that the new federal Income-Based Repayment program already allows students with low income to make little or no federal student loan payments.

"If SafeStart applied to private student loans, it might in fact be a very valuable service--although the default rate on private loans would likely make it unprofitable," writes Zac Bissonnette in a blog on SafeStart is expensive, he notes, and "provides something less valuable than what is already available for free."

But Salerno addressed the question in an e-mail to Inside Higher Ed, and noted that with the exception of those with careers in public service, IBR ultimately increases the loan repayment term, thus increasing the total interest required to pay it off. "We believe, as a lot of financial advisers do, that getting out from under your student loan debt in the fastest time possible is the best start to your financial future," he said. "We help make that possible. IBR doesn't."

Nevertheless, financial aid experts cautioned students to research all options carefully to be sure that the program indeed makes sense for them. Lauren Asher, president of the Project on Student Debt, noted in Inside Higher Ed that without "knowing one's personal financial circumstances, it's hard to know when it makes sense to pay an up-front fee."

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