Article by Jeff Mictabor
In his first State of the Union address, President Barack Obama proposed a range of higher education reforms: an expanded education tax credit, a lower payment cap on federal student loans, and more student loan forgiveness - measures that education officials and consumer advocates say will be beneficial to graduates and families feeling the growing pressures of student loan debt.
The current income-based repayment plan for federal student loans, which went into effect on July 1, 2009, caps borrowers' monthly payments at 15 percent of their adjusted annual income (defined as 150 percent of the federal poverty level guideline for the borrower's family size) and forgives any remaining loan balance after 25 years of income-based payments.
The president's plan would cap income-based payments on federal student loans at 10 percent of a borrower's adjusted annual income, down from 15 percent, and would allow remaining student loan debt to be forgiven after 20 years instead of 25. For graduates working in public service, their student loan debt would be forgiven after 10 years of income-based payments.
Under the new proposal, a borrower with an adjusted gross income of ,000 who owes ,000 in student loans would have income-based payments of 5 a month, compared to 0 a month under the current income-based repayment system.
Cutting Out the Student Loan MiddlemanIn his address, Obama also alluded to proposed legislation that would dismantle one of two federal student loan programs, the Federal Family Education Loan Program (FFELP), which pays government subsidies to banks and private lenders that issue federal parent and student loans on behalf of the government. The second federal student loan program, in which the Department of Education issues all federal parent and student loans directly to borrowers rather than through private third-party lenders, would become the sole federal student loan program.
"To make college more affordable, this bill will finally end the unwarrante! d taxpay er subsidies that go to banks for student loans," Obama said. "Instead, let's take that money and give families a ,000 tax credit for four years of college and increase Pell Grants. And let's tell another 1 million students that when they graduate, they will be required to pay only 10 percent of their income on student loans, and all of their debt will be forgiven after 20 years - and forgiven after 10 years if they choose a career in public service."
Student Loan Debt: A National OverviewAs the cost of college continues to rise, so does student loan debt. According to the latest federal National Postsecondary Student Aid Study, the average debt for students graduating with student loans has risen by about 6 percent per year since 2003-04, from ,650 for the class of 2004 to ,200 for the class of 2008. Almost two-thirds of students graduating from four-year colleges are graduating with student loan debt.
The Growth of Private Student LoansRising education costs have also led a growing number of students to seek out non-federal, private student loans to supplement the federal student loans they're taking out through the government. The percentage of undergraduates taking out private student loans nearly tripled, from 5 percent to 14 percent, between 2003-04 and 2007-08.
The spike in private student loan borrowing has been especially prevalent at for-profit colleges, where the percentage of full-time students taking out private student loans jumped from 15 percent in 2008-04 to 43 percent in 2007-08.
Private student loans have been a target of criticism from many student and consumer advocates in recent years. In contrast to federal student loans, which have low, fixed interest rates, private loans typically carry variable interest rates, which can run as high as 18 percent. Private student loans can also be riskier for borrowers: These loans generally don't offer the same loan forgiveness benefits, payment deferment options, or income-based repayment alternatives that federal studen! t loans offer.
student loan income-based repayment, private student loans, Dept. of Education's National Postsecondary Student Aid Study
About the AuthorJeff Mictabor
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