Stuck in the Middle? New Loan Measures May Help
Posted 01 Mar, 2010
For a long time middle-class Americans have felt very much on their own when it comes to paying for college. In his recent State of the Union address, President Obama mentioned efforts he is spearheading to help improve how families pay for college–and they’re not only for the lowest-income families.
Donning their Caps
You may remember that 2007’s College Cost Reduction and Access Act included several new tweaks to the federally subsidized student loans–perhaps the most exciting of which was a repayment cap that kept student’s monthly federal loan payments at no more than 15% of their income.
On the advice of the National Association of Student Financial Aid Administrators, the administration has now proposed that the cap be lowered to 10%. To help illustrate the magnitude of this change, Inside Higher Ed quoted an example from the Institute for College Access and Success: Under the current 15% plan, a graduate who earns $30,000 per year and has $33,000 in student loans would be paying $170 per month. Change that repayment cap to 10%, and the student pays $60 less than that. Without these changes, that same student would have been paying $380 per month under the standard repayment program. Imagine the difference that could make.
The change to 10% would make many more students eligible for the income-based repayment policy: about 36% of graduates currently pay more than 10% of their income to student loans.
To Forgive Divine
You may also remember the new policy to forgive unpaid student loan debt for those students who have remaining payments at the end of 25 years. The College Board has been encouraging the idea of lowering that number still further, and President Obama’s administration plans to respond. They hope to forgive remaining unpaid loan balances after only 20 years.
Will This Help?
Lowering the repayment requirements for federal loans will likely help any student who has borrowed federal funds to pay for college. Students who start with low paying jobs will find it easier to budget during their first post-grad years with less loan payment pressure hanging over them. Those who choose to accept (or continue working at) jobs they love, but don’t pay well, will also undoubtedly feel relief.
The 20 year repayment policy would especially be a boon for those in low-earning careers. Keep in mind that under the standard repayment plan, most federal student loans are paid off in about 10 years; so this new loan forgiveness policy will most likely be the exception rather than the rule. However, it may very well offer a safety net for those students who choose to pursue fulfilling, but oftentimes less financially rewarding career paths such as public service.
All the best,
Deborah Fox
Deborah Fox is the founder of Fox College Funding®, a nationwide company that helps families find creative ways to reduce their college costs.
image: yirsh
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For a long time middle-class Americans have felt very much on their own when it comes to paying for college. In his recent State of the Union address, President Obama mentioned efforts he is spearheading to help improve how families pay for college–and they’re not only for the lowest-income families.
Donning their Caps
You may remember that 2007’s College Cost Reduction and Access Act included several new tweaks to the federally subsidized student loans–perhaps the most exciting of which was a repayment cap that kept student’s monthly federal loan payments at no more than 15% of their income.
On the advice of the National Association of Student Financial Aid Administrators, the administration has now proposed that the cap be lowered to 10%. To help illustrate the magnitude of this change, Inside Higher Ed quoted an example from the Institute for College Access and Success: Under the current 15% plan, a graduate who earns $30,000 per year and has $33,000 in student loans would be paying $170 per month. Change that repayment cap to 10%, and the student pays $60 less than that. Without these changes, that same student would have been paying $380 per month under the standard repayment program. Imagine the difference that could make.
The change to 10% would make many more students eligible for the income-based repayment policy: about 36% of graduates currently pay more than 10% of their income to student loans.
To Forgive Divine
You may also remember the new policy to forgive unpaid student loan debt for those students who have remaining payments at the end of 25 years. The College Board has been encouraging the idea of lowering that number still further, and President Obama’s administration plans to respond. They hope to forgive remaining unpaid loan balances after only 20 years.
Will This Help?
Lowering the repayment requirements for federal loans will likely help any student who has borrowed federal funds to pay for college. Students who start with low paying jobs will find it easier to budget during their first post-grad years with less loan payment pressure hanging over them. Those who choose to accept (or continue working at) jobs they love, but don’t pay well, will also undoubtedly feel relief.
The 20 year repayment policy would especially be a boon for those in low-earning careers. Keep in mind that under the standard repayment plan, most federal student loans are paid off in about 10 years; so this new loan forgiveness policy will most likely be the exception rather than the rule. However, it may very well offer a safety net for those students who choose to pursue fulfilling, but oftentimes less financially rewarding career paths such as public service.
All the best,
Deborah Fox
Deborah Fox is the founder of Fox College Funding®, a nationwide company that helps families find creative ways to reduce their college costs.
image: yirsh
Subscribe in a reader
Subscribe by Email
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