Today the White House announced the Administration’s efforts to help student loan borrowers better understand and manage their student loan debt. Melody Barnes, Director of the White House Domestic Policy Council gave a statement on recent policies that the Obama Administration has set in place beginning as soon as 2012. This program is expected to help 1.2 million borrowers reduce their payments and consolidate their student debt.
Care2 has written about this issue in the past, addressing the ins and outs of H.Res 365, which calls for the forgiveness of student loans as a means of economic stimulus as the nation’s student loan debt is approaching $1 trillion.
However, the Obama administration has not gone the way of complete forgiveness, instead reducing payments to a mere ten percent of disposable income with the Pay As You Earn program. This asks an individual to pay no more than 10% of their discretionary income for student loan payments starting next year, in 2012. Currently the percentage is 15%, but only for those who sign up. The figure will be calculated based on the individual’s adjusted gross income compared to poverty level.
Teachers, nurses and other public servants will benefit most from this, often cutting payments in half. The program also allows for consolidation of both direct and subsidized types of loans. When this happens, there will be a half percent drop in the interest to the loans, the money going to subsidize the bank payments that will be put back into the Pell Grant Program, allowing more students financial access to college. Over the last three years there has been the greatest increase in Pell Grants since World War 2. This program will give back about 45 billion in government funds awarding the average student $5,550 per academic year.
Republicans have demanded that aid programs be eliminated or reduced. They are seeking to lower the $5,000 cap on federal Pell Grants, which aid low- and middle-income students and do not require repayment. The response by the Obama Administration, according to Arne Duncan, Secretary of Education, is that this is economic suicide. He suggests that the only way for the economy to turn around is to have an educated public leading the way. Since the President has the authority to make these programs active, he is going ahead with them. Duncan went onto say that “this Administration knows that secondary education is essential for the economy.”
In September, the U.S. Department of Education released data showing the percentage of federal student-loan borrowers who defaulted in fiscal 2009 rose to 8.8% from 7% the previous year. About 60% of the students who were in four-year colleges in 2009 used loans to pay schooling costs, mounting up an average debt of $24,000, according to Lauren Asher, president of the nonprofit Institute for College Access & Success. One in ten students owes $40,000 or more.
The Obama program assumes that students do not understand how to access information around loans, understand the jargon associate with the Finncial Aid letters of award, or finally have their options explained to them. The occupation of Wall Street bears this out with many who are adding their dissatisfaction over student loans to the rest of the aggravation over high-handed treatment by the banking industry.
Some protesters bear signs that read things like “Students Ought Not Be a Means of Profit” referring to the gouging interest rates that larger companies like Sallie Mae inflict on students. Students agree to these often because the student feels as if they have no other choice to get through school, and no information about other options was ever offered or explained.
Raj Dante is the Special Advisor to the Secretary of the Treasury on the Consumer Financial Protection Bureau. His organization is less than 100 days old and has taken on the task of making sure that students understand the type of loans and debt that they are taking on. They have developed a worksheet that clearly defines what is a loan, and what must be paid back and gives several options for this type of aid. The name of the worksheet and ideas are Know Before You Owe and can be found on their website, http://www.consumerfinance.gov/.
More information can be found at Studentaid.ed.gov or by calling 1-800-4fe-daid
For full remarks, please go to whitehouse.gov
photo credit: images_of_money