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New college loan repayment program aims to help students

August 11, 2009

A new program aims to give recent college graduates a safety net if they aren’t able to pay student loans back right away.

SafeStart will provide financial literacy training during college, personal debt counseling after college and loan repayment protection, said Carlo Salerno, the principal at BridgeSpan Financial LLC, SafeStart’s parent company, co-founder of SafeStart and executive vice president of external relations.

“Basically, it’s private deferment, and the whole purpose of private deferment is to let you shift your student loan payment to a time when you’re better able to afford them,” Salerno said. “If you have $200 to $300 loan payments, you probably have rent and car payments, we would rather see a student take the $300 a month and pay down a 19 percent Visa card, feed yourself and pay bills on time.”

SafeStart is set to be launched this week. Once it is, students can buy a SafeStart when they take out their loans. For the first year of the program, recent graduates can buy SafeStart retroactively, Salerno said. There is an up-front fee of about $40 to $60 for every $1,000 in Stafford loans. Students either can pay that fee right away or divide it up into monthly payments, he said.

They also can buy either full coverage or partial coverage, Salerno said.

Brett Lief, president of the National Council of Higher Education Loan Programs and a member of SafeStart’s advisory board, said to his knowledge, SafeStart is the first program of its kind.

“It’s not for everyone, but it’s here for the first time for those who need it,” Lief said.

Medical technology senior Lisa Vershave said SafeStart sounds helpful.

“I’d say it’s a good idea,” Vershave said. “The economy is tough right now. I think it’s something nice to do for students.”

SafeStart is an alternative to other methods of loan repayment, such as the federal income-based repayment plan launched in July, which allows graduates to extend their loan payments across a longer period of time. Other options include deferment and forbearance, said Val Meyers, MSU associate director of financial aid.

Deferment means graduates can postpone paying off their loan and if the loan is subsidized, interest doesn’t accrue. Forbearance also allows graduates to postpone or reduce payments, but interest still accrues, Meyers said.

She said MSU hasn’t had experience with programs like SafeStart.

“I think it’s very new,” she said. “A lot of students are having trouble (finding) work because of the economy and if they don’t know how to go to a loan company.”

There are two conditions to be able to use the interest-free line of credit: the student must graduate from college and must have a monthly loan payment that is at least 10 percent of the graduate’s income.

Salerno gave the example of a student who had a $300 a month loan payment. If SafeStart made 10 payments, or $3,000 worth for the student, then at the end of the draw period five years later, the graduate would begin to pay the loan back. The graduate would have five years to pay it back, which would bring monthly payments to around $50 a month.

Like federal repayment programs, if a graduate decides to go back to school, join the Peace Corps or the military, the five-year repayment clock stops. Salerno said SafeStart would honor about 16 federal exceptions.

Salerno and another cofounder, Jeff Weinstein, came up with the idea after working on research into federal financial aid for the Government Accountability Office.

“We looked around and said if a student defaults, the government pays off the lender, schools get the money up front, where’s the protection for the students?” Salerno said. “We tell kids ‘you need to go to college,’ we push people to take out $10, $20, $30,000 worth of loans, but there was no protection, bad things happen to good people … (we thought) how do you make a better system? How do you make it possible for people to not fall into this debt trap?”

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