Obama’s new student loan initiative to take effect in 2012
Erase student loans after 20 years of regular payments (versus 25 years currently)
Allow students to consolidate multiple federal student loans to reduce interest payments by up to 0.5%
Lower payment caps from 15% to 10% for those qualifying for the income-based repayment program (around 1.6 million students nationwide)
Not affect aid provided by Washington University.
Sources: the Project on Student Debt and Bill Witbrodt, director of Student Financial Services
President Barack Obama announced a government program intended to help college students manage their student loans and debt, as well as reduce their monthly payments last week.
The new “Pay As You Earn” program, which will take effect next year, will reduce the interest rates many students pay on loans, and waive their loans after 20 years of maintaining payments.
In addition, those who qualify for the income-based repayment program will see their payment caps lowered by one-third.
Director of Student Financial Services Bill Witbrodt said that Obama’s student debt plan will have no impact on the amount of financial aid Washington University provides for its students.
“This initiative is intended to help students who have borrowed in the past to finance their educations and who, after graduation, may not have been able to find a job or have lost their jobs due to the economic downturn,” he said.
Congress previously approved the proposal to lessen the student debt crisis in 2010, and planned to execute it in 2014. But due to Obama’s executive order, it will be implemented in 2012.
The project is just one of the government’s current efforts to aid students struggling to finance their educations. “The Know Before You Owe” project, run by the Consumer Financial Protection Bureau and the U.S. Department of Education, has organized an informational worksheet to show students the aid they qualify for and inform them of the total cost and risk of certain loans.
Freshman Amrutha Kumaran is in favor of the plan.
“I really like the idea of a program to help undergraduates be more aware of their financial options before entering into debt,” she said. “Depending on the demographics of your class, you may not be very well-informed on financial safety and wisdom.”
Kumaran added that while she supports how the Pay As You Earn proposal may help students afford higher education, she does not support the premise of erasing student debt after 20 years.
“It’s not holding families or individuals accountable for their money, which could lead to more issues in the economy than we already have,” Kumaran said. “We’ve already seen that financial irresponsibility has a lot of adverse effects in society.”
She said that while money is a concern, it is only one factor to be considered in choosing a school.
“I think the cost is always worth it if the quality of the school and everything else about the school is what you love,” Kumaran said.
Senior Colleen Yard agreed, saying she supports the government’s initiative to allay the student debt problem but disagrees with much of its approach. She noted that limiting loan payments will only delay payback, and stated that the government should pursue alternate routes to make higher education more affordable.
“Loans are not the solution to get more people to go to college,” Yard said. “I know that was the goal [of the plan], but there needs to be more in terms of grants or other incentives to get people to invest in college.”
She stressed that while the changes may be beneficial, the onus of staying informed will continue to lie on students.
“I think what’s really important is that [people know that] not only can these loans be an option, but they are educated to know what [taking out a loan] means so they don’t go into spiraling debt,” Yard said.