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Eight years ago, Greta Degen received a phone call from her former nursing adviser at Grand View University, asking if she would like to return to her alma mater to teach.

Degen, now an assistant professor of nursing at Grand View who is working on her doctorate in nursing education, had considered moving from Iowa to a higher-paying state so that she could earn more money. Her decision to stay here became easier because of a loan forgiveness program provided by Iowa Student Loan Liquidity Corp. In return for a commitment to stay and teach in the state for five years, Iowa Student Loan will forgive $20,000 of her student loan – more than half the amount she has borrowed to finish her doctoral degree.

“Seeing that nurses in Iowa make about the least (nurses) can make in the United States, it was highly likely I would have left,” said Degen, who at 44 is among the youngest nursing professors at Grand View. A single mother with four children, she expects to graduate in May 2010. “This has given me a high incentive to stay.”

Degen is among hundreds of Iowa nurses and nursing students participating in Iowa Student Loan’s Nursing Education Loan Forgiveness Program, which provides up to $20,000 in loan forgiveness to nurses who agree to become nurse educators or to work in areas with nurse shortages or in long-term-care facilities. A similar program provides loan forgiveness to college students working toward education degrees who agree to teach in subject areas short of teachers in Iowa, such as math and science.

Iowa Student Loan’s board of directors announced last week that it has extended funding for the two programs for another year. Established in 1981, the West Des Moines-based private nonprofit organization currently holds a portfolio of more than $4 billion in student loans for more than 300,000 clients. It funds its programs primarily by issuing bond to investors, but in the past year it has relied on a consortium of Iowa banks and a handful of credit unions to provide funds as it awaits a thaw in the credit markets.

Well received

The nursing education program, launched in 2004, and the teacher education program, which started in 2006, have begun to generate savings for graduates who are now working in those shortage areas throughout the state. Combined, the two programs have forgiven more than $1.23 million in loans to participants who are now working as teachers, nurses or nurse educators in the state, said Steve McCullough, Iowa Student Loan’s executive director.

“It’s been very well received,” McCullough said. “One of the things we’re very pleased about is that in fact more people are ending up staying in Iowa and earning the loan forgiveness than we thought there were going to be. So we think the program has accomplished everything we set out for it to do.”

Currently, 188 nurses and 172 teachers who might not otherwise have stayed in Iowa are working and accruing loan forgiveness through the programs, according to figures provided by Iowa Student Loan. And about one out of every four nursing and education students who apply for loans through Iowa Student Loan are taking advantage of the programs.

Additionally, “we’re hearing reports that there are increased enrollments in these programs at the colleges, and from our statistics, we have more people staying in Iowa,” McCullough said. “So the program is really having an impact.”

The two programs were designed to supplement loan forgiveness programs that already existed at the federal and state levels, he said. “So we basically took our cue from policy-makers and the programs they had already enacted. In some cases, we found that the incentives simply weren’t big enough to impact people’s behavior, so we wanted to do what we could to supplement these amounts.”

Linda Goeldner, executive director of the Iowa Nurses Association, said the Iowa Student Loan program has been able to provide more loan forgiveness dollars than either the federal or state programs. “But the demand is just larger than the money available,” she said.

For fiscal year 2010, the Legislature approved just over $90,000 in loan forgiveness dollars for the state program, an 8.33 percent reduction from the previous fiscal year, Goeldner said. And because of Iowa’s small population, the portion of federal funds coming to the state for loan forgiveness are relatively small.

“Even though our association has worked hard to get us funds in Iowa, we have not been able to get significant amounts,” she said. “Our association’s biggest concern is the pipeline of new nurses, and you’re not going to address that until you get to the shortage of faculty.”

According to a report issued by the Governor’s and Lieutenant Governor’s Nursing Task Force in March 2008, if current trends continue, Iowa will experience a 27 percent shortage of registered nurses by 2020. That shortfall, approximately 9,100 unfilled nursing positions, represents nearly one-fourth of Iowa’s current licensed RN work force, the report said.

At Grand View, Degen has told many of her students about the loan forgiveness program. Smaller institutions such as Grand View aren’t able to provide the matching funds required by the federal loan forgiveness program, she noted.

“It’s rare that a program comes along that actually benefits the students like this to actually put money in their hands,” she said. Degen estimates that by the time she completes work on her doctoral degree, she will have already taught long enough to have her loan fully forgiven.

“Now it’s a loyalty issue,” she said.

Still committed

When the two loan forgiveness programs began, Iowa Student Loan committed to write off as much as $10 million in loans to education students and $8 million in nursing student loans. The board decided to extend the programs, each initially scheduled to end after five years, on a year-to-year basis until the original amounts committed are reached, McCullough said.

“Our board is still committed to making those full amounts available, which based on what’s going on with the economy, the bond markets and the credit crisis, I think that says a lot about our board and their commitment to the state and to our nonprofit mission,” she said.

Currently, Iowa Student Loan has an additional $7.9 million in loan forgiveness commitments available to students pursuing teaching degrees, and $1.5 million left available to nursing students.

The loan forgiveness amounts come from the reserves of Iowa Student Loan, which does not receive any state funding for its loans or operations. The organization has continued to add to its reserves over the past three years, despite the turbulent economy, McCullough said.

“We have been careful to monitor and increase loan loss reserves given the challenging economic times,” he said. “Thus far, however, we haven’t seen the magnitude of increased loan defaults and loan losses from our Iowa borrowers that have been reported elsewhere.”

The biggest challenge has been not being able to issue bonds in the financial markets because demand from investors has dried up, he said.

“Traditionally, what we have done is to make sure that capital is available for student loans in the state, and part of that was us creating that capital by issuing bonds. With the credit crisis, it became obvious that we weren’t going to be able to access that capital and deliver it ourselves.”

In September 2008, as the credit markets became frozen, Iowa Student Loan reached an agreement with 18 Iowa banks, among them Bankers Trust Co. and West Bank in Greater Des Moines, to form the Iowa Alliance Private Student Loan Program. The program, designed to make supplemental, last-resort student loans to students who might otherwise have to drop out of school, made nearly $11 million in credit available. Five credit unions also agreed to provide $18.3 million in private student loans directly to students.

Iowa Student Loan now faces some uncertainty with the Alliance loan program, however, given recent news that Sioux City-based Vantus Bank has been told by federal regulators it must either be sold or close. The bank currently provides the line of credit for the loan participation program; Iowa Student Loan originates the loans, then sells a 99 percent participation to the banks, keeping a 1 percent ownership stake.

McCullough said last week that after speaking with Vantus officials, “we have been informed that there are no immediate issues with Vantus Bank’s continued participation in the Iowa Alliance Loan program.”

In the credit markets, meanwhile, some thawing has begun.

“We just issued some $440 million in debt this last week, and we’re looking to do even more than that in the near future,” McCullough said. “So we’re starting to see things turn around; we’re starting to get access to capital again. But there’s still a long way to go.”

The private student loan market still faces challenges, however, as private lenders have tended to raise their credit standards for student loans, increased the costs of the loans, or stopped offering them altogether, McCullough said.

“So fewer people can qualify, and those that do tend to be paying higher rates,” he said. “That is the gap that concerned us.”

Iowa Student Loan recently surveyed a sample of its past borrowers.

“Some of what they said was alarming to us,” McCullough said. “Many of them reported they had used one-time means to pay for college, whether it was from savings, borrowing from relatives. Some even reported putting it on credit cards, all of which they were concerned they would not be able to repeat next year. So while we were successful in averting any shortfall or crisis from last year, we do have a concern it might actually be more intense this next year.”