Relief for loan debt

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November 1, 2011

3:11 AM

In the current economic situation, affordability is a concern for millions of people, especially students. Many of those in extreme financial trouble don’t have just one big loan, but multiple federal and private loans.
In hopes of consolidating student loans and assisting people in desperate need of financial help, U.S. President Barack Obama announced modifications to be made to the existing income-based repayment plan as soon as 2012.

“I think it [the new student loan plan] would have helped me, and I think it will help people coming to this school,” Ethan Lee ’12 said.

Under the current income-based repayment plan, which was issued in 2010, people pay 15 percent of their monthly discretionary income for 25 years. The president’s new proposal, “Pay As You Earn,” will reduce these monthly payments from 15 percent to 10 percent and payment duration from 25 years to 20 years.

This new policy may cause students to alter their college considerations.

“It [the new student loan plan] would’ve allowed me to consider some private schools,” Edgar Toyos ’15 said. “It’s good for people, but I’m skeptical of what it would do to the government.”

There are now approximately 450,000 people using the two-year-old federal income-based student repayment plan. Some students believe it is worth it.

“A good education doesn’t have a price tag. Any loan is worth it,” Joy Dudley ’12 said.

People must have at least one federal loan and one private loan for the policy to apply to them. Only those with different kinds of federal loans can consolidate loans. PLUS loans for graduate students are considered for consolidation, but Perkins Loans, loans for health professions and private loans are not considered in loan consolidation.

“I need to [take] loans, and it would be nice to have some benefits with them,” Kelsey Stanton ’13 said.

“Pay As You Earn” and loan forgiveness are not the only potential benefits of the new income-based repayment plan. Under the “Interest Payment,” the government will pay any unpaid, accumulated interest for up to three consecutive years from the date students began repaying their loans, as long as their monthly income-based repayment does not cover the interest that accumulates on their monthly loans. A full-time employee who also works for public service may pay off federal student loans through 120 non-consecutive loan payments under the Federal Public Service Loan Forgiveness Program.

“People are struggling. The plan is arising out of moral decency and an interest to solve their problems,” Alexandria Foster ’15 said. “However, I don’t know what the ramifications of this plan are. What are the consequences for the government and the people?”

The potential disadvantages to the income-based repayment plan include paying more interest and having to submit documentation annually. Since the loans will be repaid over many years, the total payment will be greater than if the loan were repaid over a shorter amount of time. Income and family size are updated and factored annually to determine the monthly loan payment.

Obama announced another initiative, “Know Before You Owe,” that would require colleges to establish a “cost calculator,” making students and parents aware of their price tags. The costs are calculated by answers to specific questions about the financial data of families. Income, property and the number of siblings attending college are some of the factors considered.

Administrators have suggested that the calculator has some drawbacks. The calculator is only one resource, and it may not always be accurate. The intimidation factor of making large payments may also prevent students from applying to some schools.

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