President Obama was on our campus a couple of weeks ago, and gave a speech about changes in student loans that will, theoretically, help many students with ever-growing and sometimes insurmountable student loan debt. I was lucky enough to snag a ticket to the event. I was even luckier to be plucked out of the line waiting that snowy morning to see him, to be chosen to sit up in the bleachers behind the President as he gave his speech, my smiling mug pasted across the media. (Well, not really. I was all the way to one side, so there aren’t many photos of me, but Obama did enter and exit just a couple of feet from me.)
As outlined in a Denver Post article, Obama outlined changes to student loans, including:
- · “Under Obama's student-loan action, graduates could consolidate government-backed, privately issued student loans and government-issued loans into one federal loan. In doing so, borrowers could qualify for an interest-rate reduction of up to one-half of a percentage point.
- · In addition, Obama's action would speed up to 2012 a loan-payment relief program that was to start in 2014. Under that program, borrowers could cap loan payments at 10 percent of their discretionary income and have loan forgiveness after 20 years.”
I couldn’t hear a lot of the speech due to all the cheering, but I had a chance to review what he said later. With the amount of student loan debt now over $1 trillion, and surpassing credit card debt for the first time, it’s about time that our country did something about this plaguing problem. As I read through it, however, I couldn’t help but wonder if we couldn’t do better for our students.
The average college student today is graduating with over $25,000 in student loan debt. The loan repayment programs, while having a six-month grace period, does not factor in the realities of today’s economy. Unemployment is still over 9%, and this figure is even higher for recent college graduates. Students today are graduating into one of the worst job markets in recent history. To add to the pressures that students face when they graduate, repayments on student loans are coming due before our students are able to secure employment. Under the current system, the repayment schedule is typically a fixed amount to be paid monthly for a certain term, typically 10 to 20 years. With students forced to take entry-level and minimum wage jobs just to survive, it’s even more difficult for them to repay their loans, resulting in large rates of default.
From an article in The Chronicle:
“Under an income-contingent loan system, like those in Australia and Britain, students pay a fixed percentage of their income toward their loans. Payments are automatically deducted from their paychecks by the IRS, just like income-tax withholding. Self-employed workers pay in quarterly installments, just as they do with their taxes. If borrowers earn a lot, their payments rise accordingly, and their loans are retired quickly. If their income falls below a certain level—say, the poverty line—they pay nothing. After an extended time period of 20 or 30 years, any remaining debt is forgiven.”
As stated in a blog in the Chronicle, in the current Australian system,
- · Student loans are not interest-based, but instead, are charged an up-front fee.
- · “The fee does not increase beyond that, even if the borrower needs to interrupt repayment to pursue an advanced degree, to recover from an economic hardship, or to take time off of work for medical or family leave.”
This system makes a lot of sense. Does it make too much sense for this country? In the current political climate, I tend to wonder. Loan repayments based on what you make. Loan payments deducted from your paycheck, so you don’t have to worry about writing a check every month. No payments if you are unemployed. No interest accrual or penalties if you need to interrupt payments.
What a wonderful world…
The most frustrating thing, while thousands of people choose to protest student loan payments, is that such a small percentage are actually take advantage of the income based repayment plans. It requires students to consolidate their loans and fill out and mail some simple paper work, along with proof of income. I do not remember the exact number taking advantage of the program, and cannot find the article that I read where it was stated, but the number was so small it might as well have only been 1 out of every 50,000 students. It is true that it could take forever to pay off loans if your income only allows you to pay $200 per month, but the government has accounted for this by allowing the balance to be forgiven after 20 years of payments. For many new graduates, this means their student loans will be gone at least 10 years before they pay-off their first mortgage. The government has definitely made strong efforts to assist struggling students. More people simply need to take advantage of the options they have.
ReplyDeleteFor reasons too lengthy to list here, I'm frustrated to see so much attention paid to loan forgiveness and interest rates. Rather, we should be reducing the number and size of loans in the first place, and return to the roots of our Financial Aid system that was initially a grant-based program. We wouldn't need to forgive the loans and come up with a whole system for reducing the rates if so many student didn't have to resort to hefty loans in the first place! Granted, I realize that this may not be a feasible economic option right now, but nonetheless, it is frustrating that the conversations as of late have been dominated by loan forgiveness and lowering interest rates when we really should be talking about front-end solutions.
ReplyDeleteI have read several posts here on the issue of financial aid and there seems to be very divided opinions. I am just not sure if we reduce the number of loans the government gives out how students are supposed to pay for college? At this point many students are not able to turn to their parents to help them with the tremendous expense. In my experience you need at least a bachelors degree to get any kind of job worth while. Even if you go to a community college or a state university that costs less, higher education is still very costly. It may be possible to get a job out of high school that pays minimum wage to assist with the cost of living while enrolled as a full time student, but is that going to be enough to pay for an education? I can say that I am not familiar with the grant based program that our system was founded on. Either way there does not seem to be an easy answer.
ReplyDeleteHow wonderful for you to be able to attend this visit from our president! I'm sure you could feel the power behind these plans to a much greater degree than us reading the paper. I'm jealous :)
ReplyDeleteI just finished posting on another blog that was stating "how lucky we are" to be a part of the U.S. higher education system. In my alternative opinion, I referred to many similar statistics that you have highlighted above. Why other countries have been able to figure this out and we still suffer (we as in those obtaining the degrees, not those collecing our money) to thrive or even survive after collecting so much student debt is beyond me.
I completely agree that student loan repayment needs to be better correlated with the income our graduates are actually earning once they stop taking classes. As you had shed light onto, for many this is nothing, or $7.25/hour. Sadly, I know of quite a few people who have gone back for their graduate degree (in areas unrelated to what they actually want to do at times!) just to get the "collectors" off of the phone. This impulsive short-term solution only leads to more tuition, more loans, more debt, and more of a hole to crawl out of eventually. If that isn't a prime definition of a "flawed system," I don't know what is.