Obama accelerates student loan program to relieve debt
Published: Monday, January 16, 2012
Updated: Wednesday, July 25, 2012 20:07
For many students, loans are the only way to fund an education, but paying back these loans can be burdensome down the road. President Barack Obama announced an executive order on Oct. 26 to accelerate a student loan program that was originally set to take place in 2014. The program, which came into effect this month, was enacted to relieve students in debt by lessening the burden of paying back student loans.
With tuition rates at an all-time high, many students have to use various methods of financial aid to complete school. On average, tuition tends to increase about eight percent per year, according to the U.S. Department of Education National Center for Education Statistics. This means tuition rates increase at about twice the general inflation rate. With an eight percent college inflation rate in place, tuition doubles every nine years.
Obama's loan program will allow students to cut their loan payments down to 10 percent of discretionary income, as opposed to the current 15 percent. The loan program will allow students with multiple federal loans to consolidate payments into one monthly payment. Students will be relieved of any remaining debt after 20 years.
"The idea behind consolidation of loans is to lower interest rates," Chase Bank representative Aaron Blaylock said. "There are several million borrowers who have multiple loans that require separate monthly payments."
Before the law change, there were two federal loan programs: the Federal Family Education Loan Program and the Federal Direct Student Loan Program. The Department of Education was the lender under the Direct Student Loan Program, and private institutions such as banks and credit unions were the lenders for the Federal Family Education Loan Program.
"The two programs were basically the same, with a few differences in the repayment terms of the loans," said Delisa Falks, Texas A&M executive director of scholarships.
A majority of universities were participating in the Federal Family Education Loan Program, however, in April 2009, Obama eliminated the program, which made all loans direct. From that point on, universities had to participate in the Federal Direct Student Loan Program.
"This program is not for every student," Falks said. "Seek out all loan repayment options; ensure you choose the right one for you and your individual circumstances."
Blaylock said students tend to find themselves in the most trouble under private loans because they do not have the same protections and, in turn, are more liable.
"This is where the problem exists," Blaylock said. "Students who borrow from private lenders are not under the same government protection and they typically carry higher interest rates. Obama's plan will not help these students."
Nor will Obama's plan cater to borrowers who have already defaulted on loan payments. Also, this program will not affect students who are already in repayment and are not planning to take out any new student loans.
Students who did not take out loans before 2008 and who will borrow in 2012 can take advantage of the program.
Jonathan Meer, assistant professor of economics, does not see the program having a significant impact on student debt.
"I don't think the plan is bad, per se, but I don't think it does much good either," Meer said.
The plan only applies to current and future students who have federal loans and will have no real impact on anyone who graduated earlier.
"I'm sure that there are some individuals who will benefit, namely those with very high student loans and low current incomes, but for the most part it won't have much of an effect," Meer said.
Tyler Stewart, junior history major, said the reason behind moving the program's effective date up two years is campaigning, and that the program will have a diminutive impact, if any, on students in debt.
"The president is just trying to wrap up the student vote for 2012," Stewart said. "How is this plan going to affect students? The changes [Obama] made to the current loan plan are too minor to see any significant good come from it. And it will be far from what he is promising to students."