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Obama Administration Eases Load for Student Borrowers

Obama Administration Eases Load for Student Borrowers

 

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

 

Related Stories:

Stimulate the Economy by Forgiving Student Loans?

Student Banned For Complaining About College Credit Card Partnership

Graduate School Enrollment Down For First Time in 7 Years

 

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photo credit: images_of_money

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12:57AM PDT on Nov 1, 2011

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2:45PM PDT on Oct 31, 2011

...and having that many homes available is going to continue to drag down the market. But what do the banks care? Obama and congress will just give them more money of ours to blow, while students go home to live with their parents. Sorry so long... my sympathies to all you students. You never saw it coming. Neither did I.

2:42PM PDT on Oct 31, 2011

...best ways to reduce a debt load. With student loans, it's not possible. You're stuck. So if you gat an "accrued interest" statement, try to pay it, no matter what. It's one of the few things you can do to help yourself. Personally, I think the Obama proposal isn't really going to help much at all. It still leaves millions of student debtors in the exact same position they are now - drowning in a morass that was designed by banks to prevent you from climbing out. It's like too much else he's done - lots of talk and posturing and a sound bite that's attractive, but in the end, it's very little, and not for the people truly suffering now. If you think about it, for what TARP cost us, every man, woman and child could have, instead, been given a couple million dollars and it would have immediately kick-started AND stabilized our economy. Many would immediately pay off debt, many would go out and buy some stuff they need or want, and many would put some in savings. That would have moved money into circulation big time while reducing personal debt, saving homes and jobs, and increasing per rata savings across the board, creating more stability. Instead, the vultures got it, the "too big to fail" banks are bigger than ever, Bank of America has ratched up forecloses hugely, and we have 7.9 million homes that are available for sale. They're reporting only a fraction of that, to keep their share numbers, but many of those "gray area" forclosed homes aren't worth nearly what they clai

2:42PM PDT on Oct 31, 2011

best ways to reduce a debt load. With student loans, it's not possible. You're stuck. So if you gat an "accrued interest" statement, try to pay it, no matter what. It's one of the few things you can do to help yourself. Personally, I think the Obama proposal isn't really going to help much at all. It still leaves millions of student debtors in the exact same position they are now - drowning in a morass that was designed by banks to prevent you from climbing out. It's like too much else he's done - lots of talk and posturing and a sound bite that's attractive, but in the end, it's very little, and not for the people truly suffering now. If you think about it, for what TARP cost us, every man, woman and child could have, instead, been given a couple million dollars and it would have immediately kick-started AND stabilized our economy. Many would immediately pay off debt, many would go out and buy some stuff they need or want, and many would put some in savings. That would have moved money into circulation big time while reducing personal debt, saving homes and jobs, and increasing per rata savings across the board, creating more stability. Instead, the vultures got it, the "too big to fail" banks are bigger than ever, Bank of America has ratched up forecloses hugely, and we have 7.9 million homes that are available for sale. They're reporting only a fraction of that, to keep their share numbers, but many of those "gray area" forclosed homes aren't worth nearly what they claim -

2:39PM PDT on Oct 31, 2011

Allowing banks into the equation of student loans years ago actually was the beginning of the "strangle hold" on students who used loans to get thru. Frequently banks charged (don't know if still do) large "origination fees" that were as much as 1/3 of the loan itself. That added hugely to the debt many are facing; and it wasn't exactly "made plain" on the front end that you'd get hit with them. It was usually at check dispersal time. Then there's the problem of capitalizing interest. If a student gets a deferment and can't pay the accrued interest at particular junctures, then that interest rolls into the loan. And you literally pay interest on interest. That is an age-old "no-no" for anyone who goes into debt; it becomes a downward spiral and the loan principal grows exponentially. It's almost impossible to recover from. Add to that, if you make "extra" payment amounts month-to-month, that "extra" goes to the INTEREST (read: bank) - NOT to the principal. It's one of the only loans out there that's set up that way. Most - like a car loan - if you pay extra each month, it reduces the principal. So even if you WANT to pay it down faster by paying extra each month, it gets you nowhere. These are some of the "facts" that student applicansts aren't told. Right now, if Obama would pass an executive order, reversing this, it would likely help WAY more students climb out of debt themselves, without any extreme measures. Paying a little more than you owe each month is one of the bes

4:58AM PDT on Oct 31, 2011

Thanks for the article.

1:41PM PDT on Oct 28, 2011

Sue T. My what eloquence!

9:59AM PDT on Oct 28, 2011

The average college graduate pays about $5800 more a year in federal taxes than the average high school graduate. Over 30 years, that totals about $172,000. If that's divided by the 4 years it takes to get a college education, the government would break even if it paid every student $42,000 a year to attend school. This doesn't even consider that with the degree, the person is less likely to ever need unemployment or welfare, that more students would complete high school if they could see a clear way to a really good job, and that they would be enriching the Social Security and Medicare funds.
The best investment we could make to keep America strong is to not just forgive all student loans but to make all higher education, as long as the student is making decent grades, totally free, and increase the number of schools and teachers to make room for all who can profit from the education. We don't, even at this time of high unemployment, have so much a lack of jobs as we have a lack of people who have the skills to perform the jobs that are available- in other words, a lack of education.




8:09AM PDT on Oct 28, 2011

Eugene Robinson gets it.

"The hard-right conservatives who dominate the Republican Party claim to despise the redistribution of wealth, but secretly they love it — as long as the process involves depriving the poor and middle class to benefit the rich, not the other way around.

That is precisely what has been happening, as a jaw-dropping new report by the nonpartisan Congressional Budget Office demonstrates. Three decades of trickle-down economic theory, see-no-evil deregulation and tax-cutting fervor have led to massive redistribution. Another word for what’s been happening might be theft."

8:01AM PDT on Oct 28, 2011

Diane O - you need to try reading for a change too. It would be nice if you bothered to actually read my post and links (which I have noticed before you simply don't do) rather than just dismiss them.

I am not here to cheer lead Obama. I am not here to knock him down either. I am here to add my voice to the 99%, those who are sick of the system being rigged for the top 1%. I am sick of having the best politicians money can buy - Dem and Repub. I am sick of the government responding to their campaign donors needs way over their constituents and the good of the country. I am sick of lobbyists writing bills that help their corporate masters make big bucks at the taxpayers' expense and politicians rubber stamping them.

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