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Student Loans

Shrink Your Loans

Pay down your student debt by taking a public-service job.

New grads who want to change the world often find that fighting poverty begins at home, when they contemplate their first measly paycheck and Kilimanjaro-size student loans. One solution: With assistance programs that repay student loans in return for work in underserved areas, you can do good and still make a big dent in that debt.

Brian McDonald's first job out of college, with a bank in Rochester, N.Y., followed a traditional career path in corporate finance. But when he was laid off several months later, he made a radical switch and became an AmeriCorps volunteer in Albuquerque.

McDonald, 24, worked for a nonprofit organization that makes microloans to low-income entrepreneurs, primarily minorities and women. During his yearlong stint, he earned a stipend of less than $10,000. But thanks to AmeriCorps' loan-repayment education awards, he still managed to pay off 25% of his $19,000 in student loans. Afterward, he began a career in community-development finance with the federal government.

Public-interest jobs in underserved areas generally pay lower salaries than comparable private work in more competitive locations. To recruit qualified workers, a number of programs -- mostly governmental -- offer loan-repayment assistance plans in return for a commitment of at least a year or two. Funding can change, so the number of awards fluctuates from year to year. To put your best foot forward, you'll need to send in your application early, be flexible about relocating and be committed. To qualify for full loan-repayment assistance, you must fulfill your entire service period.

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The biggest and most diverse program is AmeriCorps, which offers more than 75,000 positions each year, including the highly competitive Teach for America. As a corps member, you can defer your student loans and receive a taxable grant of $4,725 per year for up to two years toward repaying them.

The Peace Corps, AmeriCorps' international cousin, has more than 7,000 volunteers working around the world in fields such as business development, health, agriculture and education. In return for a two-year commitment, you can defer your federal student loans. Perkins loan borrowers may have 15% of their loans forgiven for each year of service.

Health care. Brian Petrovich, 34, is a psychologist in Aurora, Mo., where 80% of his patients receive medicaid. He earns about $25,000 a year less than he could be making in a practice in Minneapolis, his hometown, where he would have fewer patients on public assistance. But over three years he has also earned $85,000 toward student-loan repayment through the National Health Service Corps.

Each year the NHSC pays 4,000 health-care professionals to work in underserved communities. Health-care professionals qualify for loan-repayment assistance of up to $50,000 for a two-year commitment. But as in Petrovich's case, the agency may encourage practitioners to stick around by continuing financial support even after the initial service period ends.

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In return for a two-year stint in areas where there's a shortage of nurses, RNs can wipe out 60% of their student-loan balances with awards from the Nursing Education Loan Repayment Program. In addition, 38 states offer loan-repayment programs to retain primary-care personnel. And some private hospitals use loan repayment as a recruiting tool. For information on health-related programs, go to www.bhpr.hrsa.gov.

The National Institutes of Health offers up to $35,000 per year in loan-repayment aid to researchers with doctoral-level degrees who study clinical, pediatric, infertility and health-disparities topics.

Lawyers. As a lawyer with the Legal Assistance Foundation of Metropolitan Chicago, 28-year-old Renai Rodney gives free legal advice to low-income housing tenants facing relocation. Equal Justice Works pays $37,500 of her $42,000 annual salary and will also give her $14,500 in assistance this year to help pay off her student loans. As a bonus, says Rodney, "I've gotten more litigation experience than I would have in a large firm." About 90 law schools give loan-repayment awards to graduates who work in public service or other low-paying fields.

Teachers. Once you have taught full-time for five consecutive years in an elementary or high school that's been designated as serving children from low-income families, the Department of Education will let you cancel up to $5,000 (and in a few cases up to $17,500) in federal Stafford or direct loans. You may also qualify to have 100% of your Perkins loans forgiven if you're a full-time teacher of low-income students or are in a field where teachers are scarce.

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Government. To recruit and retain highly skilled employees, some federal agencies, including the departments of State and Justice and the Securities and Exchange Commission, offer employees a maximum of $10,000 per year (up to a total of $60,000) in student-loan repayment. Enlisting in the Army National Guard qualifies you for $3,000 a year in student-loan forgiveness, up to a total of $20,000.