Editorial: Student loan plan still undeveloped

The feeling you have when finally graduating from college and taking that diploma in your hand is one of joy and great accomplishment, yet this “graduation high” is quickly overshadowed when your first student loan bill arrives.

On Oct. 26, President Barack Obama announced his new student loan plan. According to reports about the plan by the Associated Press (AP), the debt caused by student loans has passed $1 trillion and is still rising. Sixty-five percent of private university undergraduate students graduate with an average of $28,000 in student loans. However, over the past three years, Rider students have graduated with over $35,000 in loans. Obama, saying that he was once in the same boat as college grads with loans to pay off and not enough money to do so, has come up with his plan to try to make our loans easier to deal with.

But so far, it’s unclear if the plan will really help us take on our impending loan debt, and students should read all the fine print before getting too excited about the plan’s details. Furthermore, those with student loans need to make sure they know all of their options when it comes to paying them off.

One part of Obama’s proposal goes into effect in 2012. People can limit their monthly payments to just 10 percent of their disposable income, down from the original 15 percent. In economic times like these, a break like this will be well received. However, according to AP reports, this part of the plan applies to students who have not only taken out a loan since 2008, but will also be taking out a loan in 2012 or later. So, anyone graduating in May will finally be done with filing the endless amount of loan paperwork, but won’t benefit from the payment caps.

Another part of the plan says that any outstanding balances of a student loan will be forgiven after 20 years, instead of 25 years, as it stands now. However, one relatively unknown part of this strategy is that loans can be forgiven after as little as 10 years. According to Federal Student Aid (FSA), a branch of the United States Department of Education, loans are broken down into 120 payments. So if you make a payment every month for 10 years, that makes up your 120 payments. But, loan payments don’t have to be consecutive. With Obama’s proposal, if, at the end of 20 years, there is still a balance left, it will be forgiven.

However, in order to qualify for the loan forgiveness, students have to meet certain requirements. Each borrower has to enroll in an Income-Based Repayment Program. Using the factors of family size and annual income, FSA will calculate a reasonable amount to pay each month. When you make 120 payments of that amount, consecutively or not, you’re golden.

One issue to keep in mind is what loans this plan would apply to. Under Obama’s plan, only federal loans will qualify for consolidation or forgiveness. Because private lenders, such as banks, organizations and other non-government groups fund private loans, they have different rules than federal loans.

Unfortunately, there is a limit to how much one student can receive as a federal loan based on how many credits he or she has. Many turn to private loans, which also tend to have higher interest rates. According to the AP report, students would have no extra help in paying off any private loans.

So far, only the portion of the plan capping monthly payments has been approved. The rest is still being decided on, and since Obama has met resistance from Republicans in Congress who oppose any new spending, it’s unclear how much of the plan will be approved.

The current unemployment rate in the U.S. is 9.1 percent. When students graduate, that number will become a lot more real, and they will have to face paying off their loans. But depending on how loans are funded, either federally or privately, there are different repayment programs to consider. FSA, banks and other government lenders will establish payment plans for any borrower who asks. For more help, students should be able to also go to Rider’s financial aid office to get more information on a repayment plan. But there is no right strategy, and college grads should also do their own research to find the plan that will help them pay off their loans the best way possible.

 

This weekly editorial expresses the majority opinion of The Rider News. This week’s editorial was written by the Opinion Editor, Angelique Lee.

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