Not Nearly Enough Relief
On October 26th President Obama unveiled his answer to the growing student loan debt crisis. Obama’s plan will expedite a law passed by Congress last year that lowers the maximum required payment on student loans from 15 percent of discretionary income annually to 10 percent for eligible borrowers. Discretionary income is the amount of an individual’s income that is left for spending, investing or saving after taxes and personal necessities have been paid. It goes into effect next year, instead of 2014. Also, the remaining debt would be forgiven after 20 years, instead of 25.
Obama will also allow borrowers who have a loan from the Federal Family Education Loan Program (FFELP) and a direct loan from the government to consolidate them at an interest rate of up to a half percentage point less.
In other words the plan will cut the payment costs by five percent for eligible students and any remaining debt will be wiped clean after 20 years instead of 25. In addition to that students with FFELP and a direct loan can combine them at a lower interest rate.
While I applaud President Obama for making huge efforts to lessen the burden on students I need him to clarify a few things. As far reaching as this plan is it falls short for many folks bogged down by student loans.
It completely marginalizes borrowers with private loans and the folks that in my opinion need the most relief, the people who are in default. Obama’s plan is geared mostly towards students that take out a loan in 2012 or later and who also took out a loan sometime between 2008 and 2012, according to the Education Department.
Students that don’t fit into that timeline are stuck in their current loan payment situations. In addition, for a student to get the consolidated loan, they must have both a direct loan from the government and a loan from the Federal Family Education Loan Program.
What options are there for the students left behind in this plan? If I’ve been in student loan debt prior to 2008 who do I turn to? And how significant will the relief to the discretionary income be for students? Percentages are okay but they can often be misleading. Depending on a students level of debt, is a five percent decrease really going to keep more money in a student’s pocket or are we just holding on to a few more pennies each month? I’m not saying his plan is terrible I’m simply stating that its scope is completely excluding many folks that need relief the most.
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