In yesterday's speech on college affordability, President Obama announced plans that would make college more affordable for current and future students. But, there's nothing in the deal for people who are already struggling with their student loans payments.
Major Parts of the Plan
Starting next year, graduates would be able to consolidate Federal student loans from different programs at a slightly lower interest rate (reduction of 0.5%).
Also starting next year, student loan payments would not exceed 10% of the graduate's discretionary income and would be forgiven after 20 years. This part the plan speeds up changes to the income-based repayment plan which were previously set to become effective in 2014.
Both changes are expected to help students who borrow students loans after 2012 and Obama promised to move these changes forward without Congress if necessary. Obama says the changes won't cost anything for taxpayers.
The final announcement wasn't one that provides a direct financial benefit, but one that could help save money nevertheless. The new Consumer Financial Protection Bureau is working on financial aid shopping sheet to help students better understand what type of financial aid they're signing up for. If you're in college, going to college soon, or you're the parent of a current or soon-to-be college student, stop by and comment on what type of financial aid information you'd like to see on the shopping sheet.
Possible Drawbacks
When President Obama mentioned similar changes in his 2010 State of the Union Address, I pointed out two possible drawbacks of the plan. First, income-based payments may not cover the interest on the loan which could cause the balance to go up instead of down. Second, there could be tax consequences if you have more than $600 in forgiven student loans.
You have to be on the income-based repayment plan to get the 10% payment. Qualifications for the income-based repayment plan vary by income and family size. Payments on the IBR plan would go up as your income increased.
No Help for the Needy
Unfortunately, the changes don't provide relief for graduates who are currently struggling to pay their student loans. And the changes apply only to Federal student loans, which are seldom enough to cover full college costs especially considering the price of college continues to increase (see College Board's "Trends in College Pricing" Report).
For the first time ever, the amount of student loan debt has passed the amount of credit card debt. At least you can bankrupt credit card debt when you're completely in over your head. If you can't afford to pay your student loans, you're out of luck, unless you can somehow qualify for student loan forgiveness.
Obama’s plan is one step closer to socialism. What happened to personnel reponsibility. Those that decide to go to college and earn a degree in theatre or interior design are in many cases wasting their time going to college as they will spend a great deal of time and money on a high priced education and receive a minimum wage job in return. Next, tax payers will need to pay for their dumb choice. Instead, the person needs to understand the risk of going to colege, understadn that the degree they receive does matter, and select a career that enables them to pay off their debt. If a person suceeds or fails in their choices, they need to own up to their choices. I went to college for engineering understanding that it was in high demand. I paid off my school loans in 2 years because I made good choices. We need more personnel responsibility and less class envy. That is what are country was founded on. People suceed or fail on their own personnel choices.
It is NOT socialism. Personal responsibility is still there and it is NOT like it was 20 years ago or 50 years ago when college was affordable and student loans could be repaid.
Income has not gone up proportionate to the cost of living. $100k is still a lot of money. It was a lot of money back in the 1980′s. Back in the 1980s tuition was a fraction of what it is now. Even state schools that are reasonable or “free” now have fees that are $$ thousands and thousands of dollars.
The long and short of it is — the top wealthy 1% keep getting wealthier and now, the middle class — whose wages have been squeezed — now have the rising cost of education to look forward to.
Student loan debt is insane. Sallie mae is the worst.
We also need to factor in predatory lending of student debt. Schools for profit sell and up-sell enrollees and lead them to believe any job is within reach- but they never really explain how the debt will impact them forever. It is a pity that student believe they are doing the right hing to improve their financial outlook, but in reality, they are getting saddled with debt that never goes away- even upon death.
What part of low income don’t you get??
Not everyone with a degree strikes it rich. 120 mil adults live on $50,000 a year or less. Life happens. Glad yours is perfect.
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