Stafford Loan Justice

New Proposals

On October 25, 2011, President Obama announced alterations to the existing student loan programs. I agree with Student Loan Borrowers Assistance that the proposed “reforms” don’t go far enough. I didn’t read one mention of capitalization in the Obama proposal.

The “Pay As You Earn” proposal in a sense makes up for cutting subsidized loans and will reduce monthly payment:

 Starting in 2014, borrowers will be able to reduce their monthly student loan payments to 10 percent of their discretionary income. But President Obama realizes that many students need relief sooner than that.  The new “Pay As You Earn” proposal will allow about 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.  (para.2)

Student Loan Borrower Assistance points out that “Pay As You Earn” doesn’t apply to older loans and “does not address private student loan debt.”

But two things in the plan caught my interest. First, was this emphasis on transparency, which I have called for in my letters to legislators and on this blog:

As part of the “Know Before You Owe” project, the Consumer Financial Protection Bureau, in collaboration with the Department of Education, will release today a Financial Aid Shopping Sheet — a draft model financial aid disclosure form.  This sheet will be a tool that colleges and universities could use to help students better understand the type and amount of aid they qualify for and easily compare aid packages offered by different institutions. The form would also make the total costs — and risks — of the student loans clear before they enroll by outlining their total estimated student loan debt, monthly loan payments after graduation and additional costs not covered by federal aid.

The CFPB is taking feedback on how to further improve the form, especially looking for input from college students and their families. They can log onto to sign up to provide feedback on the CFPB’s website. Building on the model of the “Financial Aid Shopping Sheet”, the President has also tasked the Chief Technology Officer with further leveraging data and technology to help provide college- bound students and parents with more comparative information about college costs and college aid so they can make more informed decisions about where to enroll.

The second issue I noticed is outreach to small business owners with student loan debt. I’m super happy this group has an opportunity “of reducing their monthly student loan payments” (para. 11). Still, there doesn’t appear to be inclusion for those who work part time in public service positions – as in teachers, lawyers, doctors, nurses, and so on – to participate in the Public Service Loan Forgiveness program. Instead, the Obama administration proposed the following:

Today, the Administration is proposing to offer even more immediate relief to many current college students by giving them the chance to limit loan payments to 10 percent of their discretionary income starting in 2012.  In addition, the debt would be forgiven after 20 years instead of 25, as current law allows. For many who struggle to manage their student loan debt – including teachers, nurses, public defenders and others in lower-paying jobs – these proposed changes could reduce their payments by hundreds of dollars each month. Overall, this proposal would provide an estimated 1.6 million borrowers with more manageable monthly payments. (para. 6)

Even without the Obama proposals, wouldn’t borrowers automatically have their debt reduced by capitalization reform – reduce or eliminate free money to banks and the government? Certain borrowers in public service through inclusion in the  Public Service Loan Forgiveness program?

To be continued…


Written by S.

October 31, 2011 at 6:31 pm