Obama’s New Finacial Aid Plan Has Small Impact

October 29th, 2011

Watson Scott Swail,
President & CEO, Educational Policy Institute/EPI International

This week, President Obama unveiled new programs to alleviate
the debt burden on college and university students. The first program allows
students to consolidate all their college loans into one, US Department of
Education Direct Loan. Although the Department is the only originator of
student loans in the US since 2010, there are still millions of loans that are
owned and serviced by private banks from the FFEL (pre-July 1 2010) days. Obama
is offering students a chance to bring them all together under the federal
government, saving taxpayers money and also reducing the complexity of student
loans for students. As an incentive, the loan interest rate will be reduced by
up to half a percent.

Second, Obama is proposing lowering the percentage of
discretionary income required of borrowers from 15 percent to 10 percent for
graduates enrolled in an income-contingent repayment program. Thus, graduates
with student loans only would have to pay up to 10 percent of their
discretionary earnings toward their loans. After 25 years, if the student still
has loan debt, it will be forgiven by the federal government.

Both of these are positive policy moves. The first allows for
greater savings in the student loan industry, and the second provides a better
option for students with high debt in low-earning jobs.



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