It’s something most students do not want to think about. It’s something most students do not enjoy paying back. It’s something called student loans, the focus of Obama’s new plan to assist college students that are in debt.
The plan calls for a cap on student loan payments, starting July 1, 2014. It is 10 percent of a student’s discretionary income, as opposed to the current 15 percent. It also calls for loan consolidation, which will begin as early as 2012, according to whitehouse.gov.
Whitehouse.gov published the following statement on Oct. 25 by the Office of the Press Secretary: “The special consolidation initiative would keep the terms and conditions of the loans the same, and most importantly, beginning in January 2012, allow borrowers to make only one monthly payment, as opposed to two or more payments, greatly simplifying the repayment process.” This could mean a 0.5 percent interest rate loan reduction, according to Madeleine Scinto of businesssinsider.com. No need to worry about figuring out loan consolidation on your own; the U.S. Department of Education will seek out and notify eligible borrowers of this option, according to whitehouse.gov.
“While college remains an excellent investment for most students, debt may discourage some potential students from enrolling, keeping them from getting the skills they need to compete in the global economy,” the Office of the Press Secretary published on whitehouse.gov. Concerned, the U.S. Consumer Financial Protection Bureau and the Department of Education have collaborated to put together a straightforward “model financial aid disclosure form” with the goal of helping future students understand financial aid, along with a guide to compare different colleges’ financial aid, according to whitehouse.gov. The balance of one’s debt will be forgiven after 20 years, no longer after 25 years, according to Scinto. But those who opt to work for a public or nonprofit company could have those debts forgiven in 10 years, according to ibrinfo.org.
“The majority of EC [Elizabethtown College] students receive financial aid and participate in the federal student loan programs,” Elizabeth McCloud, director of Financial Aid, wrote in an email interview. “The President’s new loan plan is not meant to curb student loan debt, but rather to offer additional flexibility for students during the repayment of their loans.
In 2010, Congress had passed changes to the Income Based Repayment program (IBR) to limit monthly payments to 10 percent of discretionary income… and forgiving remaining debt after 20 years…for qualifying students. The Obama administration now hopes to implement these changes, deemed the Pay As You Earn (PAYE) plan, two years ahead of schedule, beginning in 2012,” McCloud wrote.
Assistant professor of political science Kyle Kopko wrote in an email interview, “The national average of student loan debt now is just above $25,000. College tuition has grown at a faster rate than inflation for a number of years (and this is due to a variety of factors — it’s not simply the case that colleges and universities are evil and want to milk students for every dime). Something must change in the future.”
Unfortunately, this plan only affects recent college graduates and federal student loans. Too bad for parents, 2011 graduates and those who borrowed cash from private institutions. “If you have a private loan, you’re out of luck. This new plan is aimed at helping borrowers who have federal student loans. The loan must be taken out by the student, not the parent,” Phyllis Furman of nydailynews.com wrote.
“For those who qualify for federal loan consolidation and lower interest rates, it will be helpful. There is the potential for hundreds of dollars in savings on an individual’s monthly payments. However, federal loans typically cover only a portion of a student’s debt… So while President Obama’s plan will be welcome news for more than 1.5 million borrowers, it does not address the vast majority of student loans — private loans,” Kopko wrote.
To be eligible for a new income-based plan, you must have taken out at least one loan no earlier than 2008 and you have to take out a new one in 2012 or later,” Furman wrote.
Chuck Bentley of Fox News disagreed with the plan. “President Obama’s latest end-run around Congress presumably to bail out those struggling to repay their student loans is a bad plan on many levels,” he wrote in an opinion article. “This move is akin to the danger created by the sub-prime mortgage bubble that promised easy payments now with no thought of the cost later.”
“The president says his plan won’t cost taxpayers a dime. So who is paying? A plan that lowers the interest on $1 trillion and reduces loan life by 5 years… will cost someone,” Bentley wrote.
Huffington Post’s Brian Bakst and contributor Kimberly Hefling reported, “The administration says the plan won’t cost taxpayers anything and could actually save as much as $2 billion.”
Who’s correct— Chuck Bentley of Fox News or government administration? Who knows? President Obama is on the right track when he is actively making strides to help college students’ lives. It’s nice to know that only 10 percent of one’s discretionary income now has to go to paying student loan debts, no longer 15 percent.
Debt forgiveness after 20 years, instead of 25 years is a grand idea, as is loan consolidation that can result in savings. It’s just too bad these strides did not occur sooner to help graduates before ’11, because I’m sure they’re not done paying off those hefty loans. As Kopko wrote, “Something must change in the future.”