President Obama's 2011 Executive Order on Student Loans: What it Means For You
No matter which side of the political divide you stand on, chances are you can agree that student loan debt is a problem. Education costs are rising rapidly—tuition goes up an average of 8% per year according to FinAid.org, with an all-time average high of $28,500 for private nonprofit schools and $8,244-$12,526 for public schools in 2011 according to the College Board. Over 65.6% of students at four-year nonprofit institutions carry some sort of debt after college, with the average in 2011 at $25,250--another all-time high. At the same time, new grads are having a hard time finding jobs—with record unemployment of 9.1% for recent college grads in 2010.
Some facets of the Occupy Wall Street movement have called for forgiveness of student loan debt. President Obama has responded to these demands with his “We Can’t Wait” unilateral stimulus effort. Here are the provisions of that effort—and the effect they may have on student borrowers.
Easier consolidation
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No matter which side of the political divide you stand on, chances are you can agree that student loan debt is a problem.
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In the past, the federal government had two programs for student borrowers: the Federal Family Education Loan Program (FFEL) and the Federal Direct Loan Program. FFEL loans were given to banks and backed by the government; banks then lent to students. The Federal Direct Loan Program, however, lent to students directly from the government with no banks in between; these cost the government less to administer.
President Obama abolished the FFEL Program as part of the Health Care and Education Reconciliation Act of 2010. However, many people still have FFEL loans—and approximately 6 million people have at least one of each type of loan. The proposed initiative provides certain benefits that encourage borrowers to consolidate their FFEL loans into a Special Direct Consolidation Loan, simplifying payments and reducing interest. It also saves money for the federal government, which can handle outstanding loans under the direct program more easily.
It’s important to note that, under this legislation, students will still not be able to consolidate private student loans along with Federal Direct loans. If you have private loans, these will still be under separate payments.
Reduced payments
Currently, students are required to pay only as much as 15% of their income toward student loans. Under the President’s new program, that limit will be reduced to 10%. This change was already set to go into effect in 2014; under the executive order, however, the deadline will be pushed up to 2012. According to the Obama Administration, this provision will help as much as 1.6 million borrowers. The new ceiling affects new borrowers only, however—not those who already have student loans as of 2011.
Debt forgiveness—sooner
Currently, your student loan debt can be forgiven after 25 years of regular payment. Under the new executive order, student loans can be forgiven after 20 years. As with the previous provision, this is already-enacted legislation set to go into effect in 2014—that has been moved up to 2012.
Some sources have said that these new initiatives won’t save students significant amounts of money—according to the Atlantic, the initiative is likely to save most affected students only $10 a month or less. But they are a step in the right direction. Hopefully, this legislation will lead to more aggressive reforms that can help larger numbers of students struggling with student loan debt.
Sources
Sources:
The Atlantic: Obama’s Student Loan Order Saves the Average Grad Less than $10 a Month
The Examiner: Obama’s Executive Loan Order and the Silver Bullet Theory
Mint.com: Will Obama’s Executive Order on Student Loans Help You?
NYTimes: Subsidizing the College Bubble: Room For Debate
NYTimes: College Students’ Debt Burden Grew, Yet Again, in 2010
Comments:
With two children in college - one in undergraduate school and one in graduate school, their student loan debt is awful. Since we are parents that have worked all our lives and are middle income our children are punished and expected to go to school without financial aid. As a parent I feel awful and try to help as much as possible but their loans are still large. This is a step in the right direction to be able to consolidate loan debt. However if it only counts from 2011 on my children will be virtually unaffected!
Education is very important but the cost is ridiculous. It's time for students to be given the opportunity to clear up their loans in a shorter time period.
Very interesting article. I just went back to college after 11 years out and took 2 small student loans just to make life easier. caseyscouch at yahoo dot com
This is all nice and good. However, most student loans - through private lenders - are not effected.
SL are not dischargeable through bankruptcy. Lenders have absolutely nothing to gain by reducing the statute of limitations for SL - these loans are guaranteed by the government. They will get their money, with the fees, etc... if they have to hound you until you die.
SL payments can be deducted from your social security, veterans benefits and IRS income tax refunds. They can prevent you from getting a variety of government/government industry jobs. They will lower your security clearance.
I have a friend who has a severe, degenerative neurological disease that is always fatal. She has a very short time to live. She will never be able to work again. Her only income is Social Security. She is forced to pay $300 a month on student loans. (She's more than paid back the principle.) Or choose between heat, medicine and paying her student loans to make a bank rich. All so Bank of America's execs can get another multi-million dollar bonus.
The current pro-bank state of student loans is a product of the Bush congress that rubber stamped anything the banks put in front of them.
Soon, people will start realizing going $100,000 in debt to go to a third tier law school and earning a JD that will never make you enough to pay off your student loans is a bad idea. And people will stop going to law school. Evenutally, that will trickle down to anyone who has to borrow money for higher education. People will stop attending post-secondary education. The only people who will be able to afford post secondary education will be the very rich.
When you are faced with a partner that has $100,000 in completely non-dischargable student loan debt; will never be able to buy a house; will never be able to have or support children; will never be able to buy a new car; and who will have bad credit for, at least, 25 years after they took out a student loan, that person becomes an unacceptable candidate for a marital partner. We are, already, seeing marriage statistics plummet below the 50% mark. Look for it to get worset.
40% of the people incarcerated in The United Arab Emirates are incarcerated because the couldn't pay their debts. They are in debtor's prison and will remain here until, by some miracle, they can pay off their debts. The US doesn't have debtor's prisons. The banks figure it is better to keep debtors out there working and paying them a 'vig' every month for the rest of their lives. The only difference between being in debt in the UAE and the US is that they debtor's have traded indentured servitude for incarcerating debtors.
Within a few years, some government agency will put out a press release crying about how few college graduates the US produces and how that threatens our technologica/business advantage over the third world. No one will admit the real reason for this: The Bush congress handed the bankers everything they wanted and then gutted the bankruptcy laws so the borrower has absolutely no recourse and no protection.
Welcome to a much dumber and less productive society that has sacrificed its ability to innovate in order to make Bank of America and Wells Fargo stockholders richer...
An school loan is intended to help understudies pay for college educational cost, books, and living costs. It may vary from different sorts of advances in that the investment rate may be generously lower and the reimbursement timetable may be conceded while the understudy is still in school. It likewise varies in numerous nations in the strict laws controlling renegotiating and insolvency.
It helps families, students, and schools by providing financial aid information and related services. TG also helps borrowers successfully repay their federal student loans.
More About Understanding Student Loans
- Credit Repair Services You Should Never Pay For
- Questions You Should Ask Before Applying for Student Loan Forbearance
- The Bank on Students Act: What It Is, and How It Could Help Student Borrowers
- How the Death of a Co-Signer Can Affect Your Student Loan
- Peer-to-Peer Student Loans: What They Are, and How They Can Help You Pay for College
- If You're Unable to Work Because of a Disability: What Happens to Your Student Loan?
- New Rules for Debt Collectors: How They Could Affect Your Student Loan
- Having Trouble Repaying Loans? The Department of Education May Be in Touch
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Definitely a step in the right direction and it's about time. It's appalling how much debt young people must start out their lives with now. I'm glad the banks are having less to do with student loans.