Updated 10/05/2012 09:27 AM
New UT program to forgive some federal loans
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The University of Texas is launching a pilot program it says will decrease student debt and motivate students to graduate on time.
The program would allow knock up to $2,000 off of a student’s federal loans if they graduate on time. Officials hope the incentive will encourage student to stay on track and follow through with graduation.
“Our undergraduate graduation rate has risen a little bit every year, but we want to raise it to 70 percent within the next four years," Student Financial Services Director Tom Melecki said.
More than 14,000 undergraduate students took advantage of Federal Direct Unsubsidized loans this year. Those loans can carry of 6.8 percent which begins to accrue as soon as the loan is accepted.
The pilot program, set to launch this fall, will select 200 students at random and offer to reimburse them between $1,000 and $2,000 per semester -- as long as they graduate within four years.
"It's better than nothing,” sophomore Ricky Salinas said. “It is better than staying five years and getting an extra year of debt."
But any of the classic college unknowns, including a change in major or career goal, could take this cash off the table.
"I am definitely seeing major changes,” Salinas said. “That can screw up your plans so maybe that will inhibit people from exploring what their interest is. But for people who are on track and have a goal in mind, it's definitely still doable."
Sophomores Megan Garcia and Ricky Salinas know the odds are against them to graduate on time, but say for now they are on track.
"I would definitely feel bad if I had to be in school a year longer than I had to be so I would definitely feel the burden of that," Garcia said.
The University of Texas will take the results of this program to the Texas Legislature. Officials say legislation must change to make more funds available before they can expand the program.
"We're looking to make a deal with our students, you complete 15 hours a semester we'll help you pay down your loans," Melecki said.
While it's hardly a free ride, officials say it will chip away at the mounting debt many students will face when they enter the work force.