Another five million people with student loans will be able to limit payments to 10 percent of their discretionary incomes. Loans will be forgiven in 20 years — or 10 years if they take public-service (government) jobs.
President Obama issued an executive order Monday extending generous repayment terms to more debtors. He also urged Congress to approve a bill to let 25 million borrowers refinance student loans at lower rates.
The biggest winners will be people who took on debt to pay for graduate school, notes the Christian Science Monitor.
All student borrowers – including those 5 million likely to be affected by this change – already had access to some form of income-based repayment, notes Jason Delisle, director of the New America Foundation’s Federal Education Budget Project. Under the previous terms, those who didn’t have access to PAYE (Pay As You Earn) could still do income-based repayment where they paid 15 percent of their incomes, after a $17,500 exemption, and had their debt forgiven after 25 years. In many ways, he says, those terms made much more sense, and were more fair, especially for students borrowing large sums of money to go to grad school, who are very unlikely to be able to pay off their loans in 10 or 20 years even with high incomes.
“Income-based repayment is vital, and it’s important we have it, but it’s very important we get the terms right,” says Mr. Delisle. “The payments are too low and the terms are too short for someone who’s borrowed to go to grad school.”
Burdened with student loan debt, young people can’t buy their first home, Obama said.
That’s saying “we need to help [student loan debtors] with debt so they can go into even more debt” with a mortgage, Delisle said. Student loans already helped these borrowers consume beyond their means, he said.
Encouraging students to borrow more for college also enables colleges to keep raising tuition. “It’s dealing with the symptoms and not the disease,” says Richard Vedder, director of the Center for College Affordability.
Some low-income, minority and first-generation students think their loans will be forgiven, reports Sophie Quinton on National Journal.
“A lot of students will take out loans because they hear that if you’re in a certain job it gets paid off. That’s not always the case,” says Lauren Ellcessor, 28, a counselor at the Educational Opportunity Center in Norfolk, Va.
. . . “I get the quote: ‘I’m here to get Obama’s plan to get rid of my student loans,’ ” Ellcessor says. It’s not that easy, she tells clients.
Loan forgiveness should be eliminated, argue Brookings’ researchers Beth Akers and Matthew Chingos. It encourages students to borrow more and stick the taxpayers with the bill. Frugality is not rewarded.
Nationwide, student loan debt tops $1 trillion.