Beginning in January, students who borrow to pay for college will keep more of their paycheck when it comes time to pay the loans back. Last Wednesday, President Barack Obama announced a plan that would cap monthly payments on federal student loans to 10 percent of the borrower’s discretionary income.
The change comes after a petition on the White House website asking for student loan forgiveness received 32,000 signatures. Although the focus of the plan is not on debt relief, the new proposal would forgive student loan debt after 20 years of payments.
The program is a modification of an earlier proposal approved by Congress that would have taken effect in 2014 and capped monthly payments at 15 percent of a student’s income. That proposal would have forgiven debt after 25 years. Obama accelerated the effective date of the program through executive order.
With unemployment rates still high across the country, students welcome the news.
“I’m definitely worried about paying back my loans,” said Zach Logan, 19, a freshman at Kennesaw State University in Georgia. Logan said he borrowed $500 to help pay for his first semester of college and plans to borrow similar amounts in the future.
“I like the plan,” Logan said. “It sounds like it takes the pressure and stress off students.”
Senior English major Megan Roberts, also of KSU, has so far avoided taking out student loans thanks to the HOPE Scholarship program in Georgia, which pays tuition at state schools for Georgia students with at least a 3.0 GPA. But Roberts’ scholarship will run out before she graduates, she said. Now she is contemplating taking out loans for her last semester and for graduate school.
“It’s a major concern,” she said. Taking out loans is “a reality” for a lot of students but “it’s a little scary.”
According to Rich Williams, Higher Education Advocate for the U.S. Public Interest Research Group (U.S. PIRG) and the Student PIRG’s Higher Education Project, two-thirds of students graduate with college loan debt.
“We are delighted the president is using his executive authority to provide relief to students,” he said. “It’s a small step in the right direction but a larger change is needed to come from Congress.”
Williams said the different types of loans available confuse many students. The new program will help students to track loans and allows borrowers to consolidate loans for lower monthly payments and discounted interest rates. The program is “a little public education and a little debt relief,” he said.
“The president is creating a special opportunity for students,” he said.
Not everyone is happy with the plan, however, including Republican presidential hopefuls.
“I believe it is abuse of power from the executive to impose via an executive order a wholesale change in the student loan,” Michelle Bachmann, a Minnesota Congresswoman and Republican presidential candidate, said at The Future of American Education: A Presidential Primary Candidate Forum sponsored by the College Board and News Corp.
Newt Gingrich, also running for the GOP presidential nomination, called the program a “Ponzi scheme.”
According to Gingrich, speaking at the same education forum, the president will bankrupt “the entire country by promising to every young person you will not have to pay your student loan as a student. However you will later have to pay off the national debt as a taxpayer.”
Photos by Ryan Schill / JJIE.org