Normally I might have kept this confined to the big politics thread, but, that's really more about the GOP at the moment (though if you want to see their response to this, you can see it here )
I don't know nearly as much about the intricacies of student aid as someone like rivka, but it looks pretty sweet to me. Loan forgiveness after 20 years, income-based repayments, consolidation into one loan at a lower rate.
Ideally it won't even matter. I think all of us would much prefer to simply get a good, high paying job, that would have us pay off our student loans within a 20 to 25 year period, if not dramatically sooner. My goal isn't to scrape by the bottom of the barrel for two decades to avoid paying my student loans. But for those who don't ending up in the six figures or high five figures, this could prove an excellent tool for lightening the load.
Someone I suspect it will disproportionately help English majors. Posts: 21898 | Registered: Nov 2004
| IP: Logged |
Blayne Bradley
unregistered
posted
Its a terrible plan, most debt is accumulated over the last 15 years, not many people will be able to benefit from it, at best people with over 100,000$ in student debt might save like 50$.
IP: Logged |
posted
I don't know the intricacies on how it works, but from Lyrhawn's first link it doesn't seem too bad. It's not decreasing total liability on the loans -- unless you consolidate, but it does make the loans more manageable. By opting into the lower month-to-month payments, it will increase the total amount you pay in the long run but with lower cost per month, it makes it less likely you'll default. I don't know how the loan forgiveness program works, but it seems like with lower month-to-month payments it will be easier to keep up on them. If it takes less time to achieve forgiveness, then that would decrease total liability.
The biggest problem I see is that if someone opts for the lower month-to-month payments and hits a hard time and has trouble making the payments, even if they don't default, it will make it all the harder to achieve loan forgiveness, and their total liability increases substantially due to interest. But I do appreciate that they kept that point an opt in.
I mean, it doesn't solve the problem of the rising cost of education, but it seems like it would help mitigate the harm. I'd definitely like to hear more from Rivka on what she thinks of the plan. I could be misunderstanding it quite a bit.
Posts: 1831 | Registered: Jan 2003
| IP: Logged |
posted
When you're thinking about the pros and cons of an Obama student loan plan, Make sure you take into account all the student loan nationalization regulations that were snuck into the Obama Health Care bill that are already law now.
Posts: 2532 | Registered: Jul 2001
| IP: Logged |
Blayne Bradley
unregistered
posted
Here we go, I found the post I've read:
quote: The Atlantic posted: Obama's Student-Loan Order Saves the Average Grad Less Than $10 a Month
Of the many long-term problems the U.S. economy faces, student loans are a big one. Education costs are rising very quickly and incomes aren't. As a result, students will have to borrow more and more money to obtain university degrees and will have a tougher time paying their loans. President Obama seeks to respond to this question with an executive order in the next part of his "We Can't Wait" unilateral stimulus effort. While the president's heart may be in the right place, his effort isn't like to have much impact.
The Problem: Student Loans' Crazy Growth
The cost of college is growing rapidly. That wouldn't be a problem if incomes were growing as quickly as tuition and fees. They aren't. In order to cope with the growing expense of college, more students are relying on bigger loans.
You can see that student loans have grown by 511% since 1999. Meanwhile, disposable income has grown by just 73%. As this chart also shows, most outstanding student loan debt (82%!) was accrued by students over just the past decade.
Obama's Executive Orders
The president seeks to make the situation a little bit easier for some of those graduates. He will create an executive order that has three components.
He will clear the way for borrowers with direct government loans and government-backed private loans to consolidate their balances. The White House estimates that this will cut the effective interest rate on student loans by up to 0.5%. He will limit the amount of student loan payments to 10% of a graduate's income. (Currently, the limit is 15%.) He will allow debt still outstanding after 20 years to be forgiven. (Currently, forgiveness occurs after 25 years.) Those last two orders are really just the president moving up the timeline of existing legislation. Both changes are set to go into effect in 2014, but the president will order that they go into effect as of 2012.
The Impact
Let's consider the impact of each of these orders.
Consolidation
The first would clearly be the most significant, because it is aimed at helping more student loan borrowers. How much would an interest rate reduction of up to 0.5% affect payments?
For the average borrower, the impact would be small. In 2011, Bachelor's degree recipients graduating with debt had an average balance of $27,204, according to an analysis done by finaid.org, based on Department of Education data. That average has ballooned from just $17,646 over the past decade.
Using these values as the high and low bounds of average student debt over the last ten years, the monthly savings for the average student loan borrower would be between $4.50 and $7.75 per month. Clearly, this isn't going to save the economy. While borrowers with bigger balances would save more, this is the average. And even someone with $100,000 in loans would only cut their monthly payments by $28.50.
Payment Limits
As mentioned, the government already has a program for borrowers to reduce their student loan payments to a ceiling of 15% of their income. At this time, just 450,000 borrowers are participating. Clearly, all of those participants would benefit from lowering the max payment to 10%. But how many others would?*
Student loan balances have really only ballooned over the past decade. So this change would affect very few Americans over the age of 32. For the young adults who it may effect, we must remember that educational attainment has some correlation to income. Those with the most debt will have attended business school, medical school, or law school. Most of those people will also have higher incomes, making them ineligible. For a person with the average student debt load, their annual income would need to be lower than $32,000** to qualify. The average income for Bachelor's degree holders aged 25 to 34 is $40,100.
Loan Forgiveness
Of all these parts of Obama's executive order, the loan forgiveness aspect will have the least impact. By moving the timeline from 25 to 20 years, it could be significant in the long run -- but it won't be felt for decades. Remember, 82% of the current student loan debt outstanding was accrued in just the past decade. So it will be at least another 10 years before any of those borrowers have hit the 20-year mark in their student loan payments.
posted
The average decrease in monthly payments for loan consolidation is about $10, yes. When you're only decreasing the total liability by .5% it's not much.
But the quoted article you've provided and the most recently updated article are different with respect to the "Payment Limits" portion.
Since the first printing of the article, the author has discovered that the eligibility for the 10% payment is broader than he thought in some respects, but more narrow in others. In short, the only people eligible for the 10% decrease are current students. It doesn't help people who are already paying their loans. But it doesn't have that requirement that their income be lower than 32K to qualify. It seems to me, then, as a non-expert that most current students with loans would qualify and that would be a non-insignificant savings from month-to-month.
That said, this author seems to really want to throw water on the plan just to throw water onto it. Does it address the ridiculously quick rise in tuition? Nope. This deals with loans, not cost. Does it do anything about private loans? No, but I think that would probably be outside the purview of an executive order. Does it help students that are already deep in debt? Not so much, and that's a legitimate complaint. Does it fix the economy? No... of course not.
Posts: 1831 | Registered: Jan 2003
| IP: Logged |
posted
The main problem with IBR is that the majority of borrowers who would be helped by it -- including many who have recently gone into default -- don't seem to know it exists. So if this announcement about slightly tweaking its terms at least gets borrowers to go the IBR route instead of defaulting, I'd call that a win regardless of any other improvements.
Posts: 32919 | Registered: Mar 2003
| IP: Logged |
quote:Originally posted by odouls268: When you're thinking about the pros and cons of an Obama student loan plan, Make sure you take into account all the student loan nationalization regulations that were snuck into the Obama Health Care bill that are already law now.
Do you mean the killing of FFELP? FFELP had already been killed by the sub-prime loan crisis. It was on major federal life support. Yanking that was probably not such a bad move -- and I say that as someone who was initially against the move from FFELP + DL to 100% DL.
Posts: 32919 | Registered: Mar 2003
| IP: Logged |
posted
I believe this is a measured response to a serious problem which is a soaring level of student debt that's a threat, not just to many of today's graduates, but to the wider U.S. economy.Subsidized student loans is also a way of motivating pupils to get advanced degrees. Graduate pupils, in 2012, will be asked to pay the interest that was previously subsidized. All told, the move will change accountability for $18.1 billion to already-strapped university pupils. Students should be happy enough. My article source: Graduate student loans to lose interest subsidyPosts: 1 | Registered: Nov 2011
| IP: Logged |
posted
Can anyone point me at a good source to learn more about student loans, and federal grants? (Or would it be better just to google the ones I have?)
Posts: 1574 | Registered: May 2008
| IP: Logged |
Printer-friendly view of this topic
![[Smile]](smile.gif)
