Earlier this week, President Obama announced a new plan to help Americans get their student loan debt under control. The plan, which will be rolled out in phases, addresses three major pieces of the student loan structure that have financially crippled so many households across the country: pre-loan disclosure, ease of consolidating loans, and size of student loan payments.
The first piece to be rolled out is the new “Know Before You Owe” financial aid choice guide that the Consumer Financial Protection Bureau and the Department of Education collaborated to create. It’s basically a comparison shopping tool that helps students and their families find out what type of financial aid they’re eligible for and what it will cost them long-term BEFORE they sign on the dotted line. This feature is already up and running, but the Consumer Financial Protection Board will be accepting feedback on how to improve the process moving forward.
The second part is a discount on student loan consolidation, which is scheduled to roll out in January 2012. Eligible borrowers who consolidate their loans will be able to receive up to a 0.5% combined interest reduction on Federal Family Education Loans and Direct Loans, for a limited time. The process for this loan consolidation will begin with the Department of Education reaching out to qualified borrowers, which consist of some 6 million individuals with nearly $400 billion in previously loaned Federal Family Education funding.
The final part is a reduction in monthly student loan payments. The new program would allow eligible borrowers to cap their monthly payment to 10% of their discretionary income, beginning some time in 2012. (The Income-Based Repayment Plan passed by Congress earlier last year wouldn’t go into effect until July 2014; the president’s proposal will push that deadline up.) A handy calculator on the Federal Student Aid website helps you figure out whether you’re eligible for a monthly payment reduction on your federal loans, and the Consumer Financial Protection Bureau has a more comprehensive loan management companion tool.
Of course, all of this is great news for students and recent grads heavily overburdened by student loan debt, but the president’s plan doesn’t really get to the root of the problem of the exorbitant cost of higher education in America. It simply helps college students, graduates, and their families manage their federal student loan debt in a way that doesn’t completely wipe them out each month. They (we!) are still forced to go into tens of thousands of debt to afford an college education, many taking out additional private loans instead of or in addition to federal loans. The program is a step in the right direction of improving the quality of life for thousands of grads who took out loans with the promise of jobs that never materialized four years later, but there is much more we can do to reform the system for financing higher education as a whole.
For more information:
(1) How President Obama is Helping Lower Monthly Student Loan Payments
(2) Consumer Financial Protection Bureau Know Before You Owe Tools
(3) US Department of Education’s Student Aid on the Web
(4) More from the Department of Education on Income-Based Loan Repayment