Obama Administration Eases Loan Repayment for Low-Income Borrowers; Skepticism Remains

For recent and future graduates, an expanded student loan program will make college costs easier to stomach, even as they continue to rise.

President Barack Obama has signed an executive order that will expand Pay As You Earn (PAYE), part of the Federal Student Aid program, which puts a cap on monthly loan payments and the length of time that one has to make these payments. Obama’s order would make five million additional borrowers eligible for the program, and eventually loan forgiveness.

The PAYE program caps monthly payments at 10 percent of discretionary income for low-income borrowers. It also caps how long you have to make payments. For most, their outstanding loans will be forgiven after 20 years of payments; for public service and non-profit employees, as well as teachers, their debt will be forgiven after 10 years.

Betsy Mayotte, director of regulatory compliance at American Student Assistance, said the PAYE expansion is a step in the right direction, but that consumers still have to be careful about how they pay for college and what loans they use.

“We support anything that provides relief to student loan borrowers,” Mayotte said. But, “we caution consumers not to just jump on board for the sake of getting a lower payment.”

The expansion, while largely seen as a plus for graduates in the red, has been criticized for being a short-term solution, as it doesn’t go near what some say is the root issue: the high costs of education that put students in debt in the first place.

“I think everybody has some accountability when it comes to student debt,” Mayotte said. “Schools also need to have some accountability.” Mayotte suggested that schools could provide tools for cost-benefit analysis, so that students are more informed about what they’re getting for their money.

Congress also debated student debt this month, with a Democrat-sponsored Senate bill that would put student loan interest rates, for both federal and private loans, between 3.86 and 6.41 percent, while at the same time imposing a minimum 30 percent tax for people with annual incomes higher than $1 million. Republicans, however, voted the measure down, saying that the bill didn’t address the deeper issue of rising costs, and with strong opposition to the millionaire tax.

The thing is, debt is debt. In Illinois, the average graduate leaves school $28,028 in the hole, according to The Project on Student Debt, part of the Institute for College Access and Success. Today, U.S. education debt is more than $1 trillion, a sum that has become a burden on the wider economy, keeping graduates from buying homes or saving money. Critics of the new repayment program say a longer timeline and lower interest rates aren’t the answer.

Rep. Peter Welch (D-Vt.) told Politico he supported the Senate bill, but “there’s a lot of students who are still caught in a trap of student debt. We have to start focusing on the cost side, not just the revenue side.”

One non-profit, Redeeming America’s Promise, announced a plan to make public universities tuition-free.

According to NPR, in the 1970s, “public universities responded to the decreased state subsidies by raising tuition. They responded to the increased availability of loan financing by raising tuition. They responded to the continued robust demand for higher education by raising tuition. They responded to the pressure to expand, adding new programs and majors and building bigger campuses, by raising tuition.”

Asked what the big issues are in the world of student debt, however, Mayotte didn’t name rising tuition.

“If the magic student loan genie came,” Mayotte would ask for greater “financial education literacy and resources…people just get overwhelmed.”

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