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Many college students rely on student loans to pay for college while they study. On Tuesday of last week the Obama administration created a plan that will qualify millions of Americans to cut their monthly bills from these loans. This was the newest process to surge in borrower defaults. Many students are unable to find jobs after graduation, and are having a hard time with payments on these loans. I feel this is a very positive decision, however I feel college education should be free in America as it is in my home country.
These ideas have been in the minds of the administration since summer of this year. According to this article: “The new rules allow five million additional borrowers to qualify for the government’s most-generous income-based repayment program. Borrowers typically lower monthly payments by hundreds of dollars under the program and can have a portion of their debt forgiven after 20 or 25 years.”
The plan called Pay as you earn was previously only available to those who borrowed federal loans after October of 2007. Now this is also available for those who borrowed several years ago. However no distinction was given on a cutoff date for borrowers. I feel this is a great step towards helping the economy and students alike.
Although this idea is quite appealing, it puts a risk for both taxpayers and borrowers. According to the Department of Education, it will cost taxpayers nearly $15.3 billion over the course of a ten year span. Borrowers are blind to the fact that this new plan will only increase the amount they owe. This is because often times the payments don’t cover interest. They will become trapped even longer in debt, some believe.
Obama’s new plan for this addresses concerns about college debt. He stated that since 2007, student debt has more than doubled. In 2007, it was at nearly $1.2 trillion, according to the Federal Reserve Bank of New York. Many administrators are concerned with what this is doing to people credit standings. If the credit is extremely bad, these students will be unable to purchase cars, homes, etc. This can really effect day to day lives of these students.
According to my article nearly one in three Americans who pay monthly on students loans were at least a month behind on payments. This was conducted by St. Louis Fed research earlier in this year. About seven million students had gone an entire year without making a payment and these statistics were given by the Educational Department.
The report conducted “underscores escalating college costs as well as a dramatic shift in how American households are financing higher education. “ Ten years ago, generally a graduating senior left with debt of about $18,550, compared with about $26,000 today. This number is about 56% of an increase since this past decade. Also it is double the rate of inflation in other terms.
In conclusion, I feel this decision is quite complex but seems to be more beneficial than harmful. Some debt will be eliminated after 20-25 years. This is better than nothing. I understand these persons will accumulate quite a bit of interest but its better they pay what they can afford, rather a ridiculous amount. As I stated previously, I feel the United States should adopt Saudi Arabia’s way of handing education. The government pays for all education and also living expenses while studying abroad. The reason they do this is so that the country has educated persons working. By reducing the expected amount each month, recent graduates have the opportunity to get on their feet before being overwhelmed with loans.
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