Making Student Loans More Affordable: A New Plan

Jensen Appleman and Nathaniel VanderWerff, Elizabethtown College

Student loan debt is a worry for many college students in the United States. There are more than 36 million citizens in this country with federal student loan debt, and the total amount of outstanding student loan debt is about one trillion dollars. In June 2010, “total student-loan debt exceeded total credit-card debt for the first time” (Meckler and Randall) and the default rates on federal loans have risen from 7 percent in 2008 to 8.8 percent in 2009. Many graduates are having difficulty obtaining jobs with a steady salary, in addition to the interest and penalties which have piled up on their loans over time. Even more frightening, student loan interest rates are expected to rise in the near future, possibly doubling to 6.8 percent by next July. An alarming statistic states that, “the unemployment rate for people younger than 30 is 13 percent” (Khan 3).  College and university tuitions have also been on the rise. Since 1978, the overall cost of education has increased by a staggering 900 percent. Student loan debt is an immense problem because more and more unemployed students continue to graduate each year, without any realistic means of paying back their loans.

President Obama proposed a new student debt plan at the end of last October. Under the plan, borrowers will supposedly see their monthly payments drop. Borrowers are currently able to cap their monthly student loan payments at 15 percent of their discretionary income, and to then drop to 10 percent on July 1, 2014. (Murphy 1). Under the new bill, with the accelerated “pay as you earn,” initiative, some borrowers will be able to access this option as early as 2012 (Murphy 1).  College students who have both a direct federal loan and a guaranteed federal loan will be able to put both of the loans together into a Special Consolidation Loan, lowering their monthly payments by 0.25 percent.  If they also enroll in automatic payments from a checking account, they may receive an additional 0.25 percent off. For students who have already reached their full twenty years of payments, they will be free from paying anymore dues. Furthermore, graduates who have been working in public services for the past ten years will have their remaining payments waved.

There are several negative aspects to President Obama’s student loan forgiveness plan.   While the new student loan initiative will help close to 8 million borrowers burdened by student loans, over 36 million Americans currently suffer from federal student loan debt. Therefore, this new proposal will only benefit a small portion of these college graduates. The acceleration of the “pay as you earn” program doesn’t benefit the majority of people because less than 450,000 of America’s 36 million student loan borrowers are participating in the income-based repayment program (Kahn 2). Perhaps the biggest disadvantage to the Obama Administration’s plan is the fact that individuals who have already graduated are not eligible to receive any relief. Only students currently enrolled in an institution of higher education who will take out at least one more additional loan in 2012 are eligible. The loan consolidation effort will also only aid certain types of borrowers- people with direct federal loans and people with guaranteed federal loans. Borrowers whose loans came from banks do not qualify as well as individuals with private outstanding loans. Additionally, people with even one defaulted federal loan are not eligible.

There are people who believe this plan is just an attempt to gain votes for the upcoming presidential election. However, Obama claims his initiative is designed to stimulate the economy by relieving some burden on borrowers and placing more money into their hands to be spent.

If the student loan forgiveness plan has a widespread impact on student borrowers, it will affect colleges and universities as well. Across the board, the cost of college is rising drastically and many students are unable to pay for their education. With Obama’s new plan, students will ideally be able to stay in school, therefore increasing revenue for colleges.

Whether the government is overstepping its boundaries in the student loan business depends on how one views what the appropriate amount of government interference should be. But there is no doubting the fact that rising student loan debt is a huge issue in our country.

Works Cited:

Helton, Jordan. “Student Loan Forgiveness: Obama Plan.” International News | Breaking US and World News Headlines – GlobalPost. 26 Oct. 2011. Web. 01 Dec. 2011. http://www.globalpost.com/dispatch/news/regions/americas/united-states/111026/student-loan-forgiveness-obama-plan.

Khan, Huma. “Obama Speeds Up Aid for College Students: How Will It Help You? – ABC News.” ABCNews.com: Daily News, Breaking News and Video Broadcasts – ABC News. ABC News, 26 Oct. 2011. Web. 28 Nov. 2011. http://abcnews.go.com/blogs/politics/2011/10/obama-speeds-up-aid-for-college-students-how-will-it-help-you/.

Meckler, Laura, and Maya Jackson Randall. “Obama Plan Would Cut Student-Loan Interest Rates – WSJ.com.” Business News & Financial News – The Wall Street Journal – Wsj.com. 26 Oct. 2011. Web. 01 Dec. 2011. http://online.wsj.com/article/SB10001424052970204644504576653043088346786.html.

Murphy, Eamon. “Obama’s New Student Loan Plan: Could You Pay Less? – DailyFinance.”Business News, Stock Quotes, Investment Advice – DailyFinance. 26 Oct. 2011. Web. 28 Nov. 2011. http://www.dailyfinance.com/2011/10/26/obamas-new-student-loan-plan-will-it-let-you-pay-less/.

Travers, Eileen. “University World News – US: Mixed Victory for Students under Obama Loan Plan.” University World News – University World Home Page. 30 Oct. 2011. Web. 01 Dec. 2011. http://www.universityworldnews.com/article.php?story=20111030081404893.

Walker, Kevin. “What President Obama’s Student Loan Forgiveness Plan Means for You.” BostInno – Start-ups and Boston News. 31 Oct. 2011. Web. 01 Dec. 2011. http://bostinnovation.com/2011/10/31/what-president-obamas-student-loan-forgiveness-plan-means-for-you/.