Help Your College Grad Pay Off Debt

Last Updated May 7, 2009 9:07 PM EDT

I just spent this past weekend in Providence, RI, home to Brown University and a handful of other colleges. No matter where I went, all anyone could talk about were final exams and the upcoming graduation season. As excited as the students were, I can only imagine their parents were ecstatic, hoping that their days of supporting the kids are almost over. But the reality is that all those grads and many like them around the country will likely need some help paying off their debt.

Thanks to a lousy economy, college grads are having a tough time finding jobs. And those that do manage to land a position can expect to make less than last year's graduates, according to the National Association of Colleges and Employers. That means your kid will have less money to put toward rent, credit card debt (average balances exceed $3,000) and those hefty school loans (average debt per borrower is nearly $23,000).

What's a parent to do? I understand it may be tempting to help your child with his student loans, but chances are you're having some financial problems of your own. After all, the economy isn't exactly booming and most retirement accounts have taken a beating thanks to the bear market.

So how can you lend a hand without draining your own savings? Here's a solution: Recommend your son or daughter look into a loan forgiveness program. Thanks to the College Cost Reduction and Access Act of 2007 and the American Recovery and Reinvestment Act of 2009, the government is throwing money toward these programs and students would be crazy not to look at them. Here are a few examples worth their consideration.

Volunteering Their Time
If your child can't find a job, he could consider volunteering for AmeriCorps, Volunteers in Service to America (VISTA), or the Peace Corps and receive money to pay off qualifying federal student loans. AmeriCorp, for example, offers volunteers a $7,400 stipend and $4,725 for student loans in exchange for 12 months of service.

Teaching
If your child has an interest in returning to the classroom, there are plenty of programs to help educators pay off loans if they commit to working in areas that serve low-income families. For example, high school math and science teachers who work for five years in an eligible school could earn as much as $17,500 in Stafford loan forgiveness (and that's on top of salary).

To learn more about these programs, have your recent grad contact his or her local school district or the US Department of Education to see which schools are eligible. The American Federation of Teachers also maintains a list of loan forgiveness programs.

Working in Public Service
Some parents may be reluctant to encourage their kids to pursue public service careers since the pay tends to be rather low. But the good news is that under the Public Service Loan Forgiveness Program, the government will cap public servants' monthly loan payments based on their income. So student debt should be affordable no matter how little your child earns. And if grads are diligent and don't miss a payment, any remaining debt after 10 years is forgiven. http://www.finaid.org/loans/ibr.phtml

You can check out FinAid.org for additional loan forgiveness programs that your child may qualify for, including ones geared toward the medical field.

Even with these programs, don't despair if Junior wants to move home so he can afford his loans. Start charging rent and you may be surprised to see that Mom's home cooking doesn't have quite the same allure.

Pomp and Circumstance image by Herkie, CC 2.0