There has been a lot of talk in the news about President Obama’s recent actions to “make college more affordable.” But has he accomplished this? Has he taken steps to lower the cost of attendance of a four year college in this country or merely taken an incremental step towards making repaying the loans more affordable? In my opinion, it is the latter.
First, A Little History
In 2010, President Obama implemented the Pay As You Earn (PAYE) repayment plan , which simply modified the terms of the already existing Income Based Repayment (IBR) plan by lowering the cap on monthly payments from 15% of your disposable income to 10%, while lowering the time for balance forgiveness from 25 years to 20.
The problem was, this change only included those already in college at the time, basically the Class of 2013 and afterwards.
What the President did this month was throw open the PAYE plan to everyone. But does that really help? Does it really make college more affordable? I don’t think so.
What He Did
The President was only helping current college students when he created PAYE, so that plan already had a very limited pool of people that would benefit. With this new action, he
- expanded it to all graduates who would qualify for (and benefit from) IBR. But according to the Washington Post, that would only help an additional 5 million graduates of the roughly 34 million borrowers out there (about 15%)
- reduced the cap on payments by 5% from 15% to 10%. The effect on monthly payments, therefore, is helpful, but not earth shattering
- reduced the maximum repayment term from 25 years to 20 years, thus bringing the light at the end of the tunnel a little closer.
The problem with all of this is not what he did do, but what he did not do!
What He Did Not Do
In order for President Obama to meet his goal of making college more affordable, he needs to work with Congress to do much more. His actions are a step in the right direction, but a baby step nonetheless. He did not:
- make any forgiven balance at the end of the 20 years not taxable. Currently, forgiven loan balances are considered income by the IRS and thus taxable! This makes the light at the end of the tunnel an oncoming train!
- extend this to Parent PLUS loans (currently only eligible for Income Contingent Repayment or ICR), so parents carrying high loan debt for their children get no relief
- remove bankruptcy protection from private student loans, which do not have income based plans, debt forgiveness or default rehabilitation.
Although making student loan payments more affordable is a good thing, making college itself less expensive (thus reducing the need for loans in the first place) would be even better! That would truly make college more affordable!
If you live in southern New Jersey and would like to consult with me on your loans, please feel free to call my office at 856-432-4113 or contact me through this site to schedule an appointment in my Woodbury office to discuss your case.
If you would like more information about student loans, you can dowload my free book, I Graduated; Now What? A Guide to Dealing with Your Student Loans.