President Barack Obama’s changes to the income-based repayment plan will only marginally help its touted benefiters, low-income students, while high-income students with large debts will reap most of the benefits, according to a report released last Tuesday by the New America Foundation.
As the income-based plan currently stands, borrowers pay back up to 15 percent of their annual incomes per month and can expect loan forgiveness by the government in 25 years. Obama’s plan reduces the monthly cap to 10 percent and payment time to 20 years. These changes were set to start with borrowers in 2014 but now may take effect as early as this year.
That may not be soon enough.
“It won’t apply to anyone who started repaying just as the recession was coming on, so it’s not going to help the bulk of the people who are in trouble because of the downturn,” Professor David Feldman, College of William and Mary economics department chair, said.
Although the program was advertised by the Obama administration as a way to ease the financial burden on lower and middle class students, low-income borrowers will see only a 5 to 20 dollar decrease in monthly payments, while high-income students with large amounts of debt from graduate or professional schools will see potentially hundreds of thousands of dollars of debt forgiven after 20 years.
“I don’t think I agree with the fact that people’s loans are being forgiven after a certain amount of time because I feel like it’s part of personal responsibility — that if you decide to go to law school, you’re going to have to pay for that,” Erin Hills ’14 said.
These benefits for high-income borrowers who earn upwards of $100,000 year does not seem fair to Johanna Hribal ’13, currently studying at the School of Education.
“If I’m a teacher, I work hard too,” Hribal said. “But I’ll only be making at most $40,000 a year, so it’s going to be a lot harder for me than for them.”
Economics professor Robert Archibald wasn’t sure the policy was unfair.
“I don’t know if it’s a matter of fair or not,” Archibald said. “It’s just a matter of if you are worried about people with excessive loan burdens, then you develop a program and you say anyone who has excessive loan burdens can come in.”
Feldman argued that the focus of the student loan debate lies too much on the outliers, those with significant amounts of debt.
“The idea that we have this national catastrophe because the average student is coming out with debt equal to the cost of an economy car is laughable. 90 percent of borrowers don’t have $45,000 worth of debt,” Feldman said.
But students are still worried about the results.
“That’s if you’re not incurring any extra debt. In this day and age you can’t get a job with the undergraduate level that’s long lasting. So instead of me buying that midsized Toyota Camry, I’m now buying the upscale Lexus that I can’t afford,” Hills said.