White House releases plan to curb financial aid debt
By Nick Christian
The “Pay as you earn” proposal released by the White House administration would
allow students, starting in 2012, to reduce payment of their student loans to
10 percent of their discretionary income. The reduction in payment is something
Director of Financial Aid Lee Carillo said students might benefit from.
“Yes, I believe everyone is looking for a break and reducing the amount paid monthly
might reduce the default rate in the future,” said Carillo via e-mail. “Also,
reducing the IBR program from 25 to 20 years is a great benefit to students.”
The proposal will allow 1.6 million students the ability to cap their loan payments
at 10 percent starting next year, and the plan will forgive the balance of
their debt after 20 years of payments, according to the release. The current
law allows borrowers to limit their loan payments to 15 percent of their
discretionary income and forgives all remaining debt after 25 years.
The release also noted that starting in January an estimated six million college
students and recent college graduates will be able to consolidate their loans and
reduce their interest rates.
All changes associated with the proposal would have no extra impact with tax payers
according to the release.
Having the funding to attend college is something President Barack Obama said is very
important, according to the release.
“In a global economy, putting a college education within reach for every American
has never been more important,” said Obama. “But it’s also never been more
expensive. That’s why today we are taking steps to help nearly 1.6 million
Americans lower their monthly student loan payments. Steps like these won’t
take the place of the bold action we need from Congress to boost our economy
and create jobs, but they will make a difference.
Also in the release was notification that the administration is planning to offer
student borrowers the chance to better manage their debt by consolidating their
federal student loans. The Administration will allow the repayment of both
direct loans and Federal Family Education loans to be repaid as one payment.
The release also notes that the borrowers who choose the consolidation option
will receive up to a five percent reduction in their interest rate on some of
their loans beginning in January.
With all the proposed changes, Carillo said he hopes students still borrow wisely.
“I would hope students don’t see this as a reason to borrow more, but only time
will tell what our student population will do. The good thing is that there are
maximums per year a student can borrow and with the new Satisfactory Academic
Progress policy students have to complete a program within the 150 percent