White House rolls out relief program for millions of college debt holders
A conference call with reporters today revealed more details about the Obama administration’s plan to roll out a program for student debt relief.
Education Secretary Arne Duncan Duncan, Director of the White House Domestic Policy Council Melody Barnes and Raj Date, Special Advisor to the Secretary of the Treasury on the Consumer Financial Protection Bureau (CFBP) told reporters today’s White House proposal is casting a wide net to help more debt holders.
A fact sheet provided to reporters indicates the White House expects college loan holders to save “hundreds” of dollars per month through this relief package. During the call, Duncan said a nurse earning $45,000 a year with $60,000 in loans can expect a $451 reduction in monthly payments.
A summary of the college payment relief programs:
· Starting in January of next year, allow individuals to consolidate their Federal Direct loans with subsidized loans. The White House says this move can tack off half a percentage point in the interest debtors pay. Barnes told reporters submitting payments to two different loan services increases the risk of default.
· Expanding the IBR program through a pay as you earn service that caps the discretionary income considered to 10 percent that will also go into effect January of next year. While the president had Congress approve a similar IBR measure that lowers the percentage of income considered, that rule won’t go into effect until 2014. White House numbers project the move will help 1.6 million student borrowers. Today’s proposal also excuses all unpaid debt after 20 years of successful minimum payments, rather than the 25 years originally legislated. Discretionary income is calculated by subtracting150 percent of the poverty line from a person’s adjusted gross income–that dollar figure at the end of one’s tax return.
· The CFBP, less than 100 days old an a product of last year’s big bank regulation law known as Dodd-Frank, is in the finishing stages of a simple Financial Aid Shopping Sheet, which would de-jargon the language on college award letter and scholarship documents. “The form would also make the total costs — and risks — of the student loans clear before they enroll by outlining their total estimated student loan debt, monthly loan payments after graduation and additional costs not covered by federal aid,” indicates a White House press release.
Tackling student debt is part of the administration’s larger effort to circumvent policy changes that need Congressional approval. “We simply can’t wait for Congressional Republicans to act,” said Duncan.
While Congress in 2009 approved a measure called Income Based Repayment, which went into effect last year, only 450,000 college loan holders have signed on out of the over 30 million Americans juggling higher education debt. That program caps the amount college debt holders pay on federally-backed loans to 15 percent of their discretionary income.
Perhaps coincidentally, College Board released a report today showing college tuition and fees rose this year by more than 8 percent from last year for public four- and two-year colleges. Still, more students are entering college, the report noted, as an additional 2.8 million students enrolled in school between 2007 and 2010.
Higher education has been under a microscope as job prospects are low for many and additional education is sought after. The swell of new students is forcing campuses to find new revenue streams to keep up with services, often resulting in seeking out students who pay higher tuition. The trend is most visible at public universities that have set their sights on out-of-state candidates who pay considerably more than local students — at times three times as much.
Taking into account a student’s ability to weather the financial burden of higher education is an increasingly ethical dilemma. Student default rates, as determined by the two-year cohort rate calculated by the U.S. Department of Education, is at a 12-year high, with 8.8 percent of graduates not paying their college loans for 270 days or more. Using a more comprehensive metric, a report issued (PDF) by the New America Foundation found that 15 percent of graduates defaulted, while 21 percent were delinquent on their payments.
But despite the costs and risks of falling behind in payments, arguments college is still worth it abound.
Individuals possessing a college-equivalent degree can expect to earn 80 percent more than a person with a high school degree. In an earlier study from researchers at Georgetown University, a college degree holder can expect to make $1.4 million more than one witha high school degree. And owning a college degree goes a long way to having a job: while the unemployment rate in this country is 9.1 percent, only 4.3 percent of college degree holders are jobless.