How to Cash in on Obama’s Student Loan Plan
Julia Minamata juliaminamata.com
Like 56 percent of college students in New Mexico, I took out student loans to finance my education. Whenever I get a letter from my lenders, I file it away in the very important pile on top of my fridge.
Looking into President Obama’s Pay as You Earn proposal for the Alibi was the push I needed to delve into the jargon and fine print, and figure out what this means for us and our loans. Obama announced his plan in mid-October as a way to smooth the crater of student debt for 1.6 million Americans.
I read some articles, I talked to Rep. Martin Heinrich, I called the director of financial aid at UNM and even contacted someone at the Department of Education.
Here's what I dug up, so you don't have to:
What’s going to change?
OK. So I'm going to throw some numbers around, but stick with me. Under Obama's proposal, Student Aid’s Income-Based Repayment Plan will require the indebted to cough up no more than 10 percent of their discretionary income each month. The cap used to be 15 percent.
Heinrich explains that the caps will help those who wish to go into lower-wage jobs but worry about their ability to pay off their debts. It doesn't matter if you're a teacher, a lawyer or a hotshot at Sandia Labs, you'll never have to pay more than 10 percent of what's left over after buying food and paying rent.
Also, if you're still saddled with ancient student loan debt in 20 years, the government will forgive it. You’ll be free to start spending money on your child's education instead. Previously, you wouldn't be forgiven until 25 years passed.
Is this actually going to happen, or is the announcement merely the beginning of years-long congressional debates?
Obama's plan falls under the category of “executive action.” If you think that’s a ’70s movie starring Burt Lancaster, you're right. But it also refers to those times when the president decides Congress is moving too slowly.
Heinrich says he hopes the proposed measures can be carried out administratively instead of going through Congress, which often delays the process.
When does it go into effect, and do I qualify?
This isn’t going to help everyone right off the bat. At first, the new rules were slated to go into effect on July 1, 2014, and they would help everyone who took out loans after that date. Only new borrowers would benefit.
But since the economy’s in the toilet, Obama wanted to speed things up. Anyone who borrowed from 2008 on can apply, but you have to have taken out a loan this year as well.
How did this come about?
The plan to lower mandatory payments based on income has been in the works for a while. Remember the health care act in 2010? Well, the Student Aid and Fiscal Responsibility Act tagged along in the shadow of that monster of a bill. Obama pushed the start date from 2014 to 2012 under the slogan “we can't wait.”
Obama's latest move allows those who apply for the income-based repayment plan between Jan. 1 2012 and June 30. 2012 to lower their monthly payments now.
The financial aid act also did some interesting things with loan consolidation by eliminating the banks as middle men in favor of direct loans with lower interest from the U.S. Department of Education.
Will private loans be affected?
Private loans issued by banks are not addressed by federal guidelines. This proposal does not change anything for people who have them. Students often take out private loans when they can no longer borrow from the government. Private loans usually have higher interest and do not carry the same options of income-based repayments or loan forgiveness as federal loans. The moral: Stay away from private lenders.
How does New Mexico compare to other states?
It turns out we have one of the lowest rates of students taking out loans in the country, according to the Project on Student Debt. We’re ranked No. 29. Sometimes it's good to be near the bottom.
About 36 percent of UNM undergraduates have student loans, says Brian Malone, the director of Financial Aid at UNM, which is lower than the median of 42 percent among comparable institutions in the Southwest. Throughout all UNM branches, there were 13,813 borrowers attending school in the last academic year, according to Malone.
Just how much debt did Barack and Michelle Obama have when they graduated?
This wouldn't be an article about the president’s student loan initiative if it didn't mention that he and first lady were in the hole for $120,000 when they finished school.
For more fun reading, consult Federal Student Aid at bit.ly/directloan.
You can explore repayment plans and calculate your interest, as well as learn the ins and outs of direct loan programs.