Obama plan lowers payments for millions of student borrowers
BY KARA SPAK Staff Reporteremail@example.com October 26, 2011 9:14AM
Asia Rapier (on the right) is a student at De Paul University who has a student loan. On the left is fellow student, Edward Ward. She talked about the new proposed changes to federal student loan issues proposed by President Obama. | Al Podgorski~Chicago Sun-Times
Updated: November 28, 2011 10:07AM
Asia Rapier, 18, cried when she signed the paperwork on the student loans she took out for her first year at DePaul University.
By the time she graduates, the freshman journalism major from Chicago’s West Side estimates she will owe in excess of $60,000 in what could still be a slow job market.
“I’m very nervous,” Rapier said. “I wanted to start off with a clean slate, but I’m going to need to find a way to pay.”
American student loan debt is nearing a collective $1 trillion, and these loans are currently the second greatest source of household debt after mortgages.
On Wednesday, in a speech from Denver, President Barack Obama said he will use his executive authority to provide relief for borrowers, like Rapier, in two ways.
First, he will speed up implementation of a measure already passed by Congress that reduces the maximum repayment on student loans from 15 percent of discretionary income annually to 10 percent. The White House wants it to go into effect in 2012, instead of 2014, and the remaining debt would be forgiven after 20 years, instead of 25.
Second, he will allow borrowers who have a loan from the Federal Family Education Loan Program and a direct loan from the government to consolidate into one loan. The consolidated loan would carry an interest rate of up to a half percentage point less than before.
The White House estimates as many as 7.4 million could benefit from these changes and says some borrowers could reduce their payments by hundreds of dollars a month.
But a vocal group pushing for reform — recent grads with heavy debt burdens and grim job prospects — is not eligible for the new income-based repayment plan and might not benefit from consolidation, said Mark Kantrowitz, a financial aid expert and publisher of FinAid.org.
“Someone who graduated this year or several years ago who has unaffordable debt because he is unemployed or underemployed will not benefit from the [new income-based repayment] program,” he said.
For those currently in repayment, he said the benefit for consolidating is “relatively minor.”
While those graduates are eligible for a current program that caps payments at 15 percent of discretionary income over 25 years, only about 1.25 percent of borrowers in repayment — or 450,000 borrowers — are using the program, he said.
The White House said the changes will carry no additional costs to taxpayers.
For Edward Ward, a DePaul freshman from the Austin neighborhood who estimates he will owe $20,000 in loans when he graduates, the prospect of income-based repayment “provides me some ease.” Still, the prospect of paying off thousands of dollars is daunting.
Tim Opgenorth, the University of Illinois at Chicago director of financial aid, said his school is offering a record $37 million in need-based financial aid for undergrads this year. Still, students are graduating with significant debt — an average of $18,526 for UIC undergraduates who finished in the spring of 2010, the latest figures available.
Nationally, the average debt burden for a 2011 graduate was $22,900.
“We see more and more parents unable to assist students,” Opgenorth said. “So parents are saying we want you to go to school but we can’t afford to help you anymore.”
Anastasia Tsuhlares, 20, an urban planning major at DePaul, will owe more than $100,000 when she graduates. She called the cost of higher education “ridiculous.”
While she likely will be eligible for the new Obama repayment plan, she did not find the proposal, which would have her paying student loans into her 40s, particularly helpful.
“That sounds insane for me to be in debt for half my life,” she said. “It’d be great if they could offer us some money.”
The Occupy Wall Street movement and others have pushed for total student loan forgiveness as a way to stimulate the economy, and groups like Student Loan Justice have called for more consumer protections for borrowers, including the ability to discharge student loans in bankruptcy.