Obama Sets Student Loan Relief Measures
By Justin Pope
President Obama prepared to announce a series of steps on Wednesday to help with one of the consequences of rising college prices: student debt. This year total outstanding student loan debt has passed $1 trillion, now exceeding credit card debt. And concerns about student loan debt have been front and center with many of the Occupy Wall Street protesters.
Obama will use executive authority for two loan-relief measures. First, he will move up the start date — from 2014 to 2012 — of a plan Congress already passed that reduces the maximum repayment on federal student loans from 15 percent of discretionary incomes to 10 percent. The White House says about 1.6 million borrowers could be affected, and that remaining debt would be forgiven after 20 years, instead of 25.
The administration also will allow 5.8 million borrowers with outstanding loans from two federal programs to consolidate into a direct loan, potentially saving some borrowers hundreds of dollars per month.
Those changes may not help new borrowers much, but they could put cash in the pockets of millions still paying back their loans. They also could encourage more borrowers to take advantage of the income repayment options that are already in place, but not widely known. Finally, by consolidating into direct lending, more could qualify for that program's public service loan forgiveness, which can forgive debts after just 10 years of repayments for people working in nonprofit or public service jobs.
The College Board reports roughly 65 percent of 2009-2010 bachelor's degree recipients at private universities graduated with debt averaging around $28,000. Those figures are likely to rise, though private borrowing — usually more dangerous than government loans — has been falling.
"Psychologically, practically, it's a big number, and it will inform important choices, like when and whether you buy a home, start a family, save for retirement or take the risk of starting a new business," said Lauren Asher, president of The Institute for College Access and Success, who also applauded the Obama announcement.
And Asher and other experts emphasize that the types of loans students take out can be as important as the amount. In general, a college degree remains a good investment.
Other slivers of what passes for good news: Both community colleges and private four-year colleges reported lower tuition inflation than public universities.
At nonprofit private four-year colleges, tuition and fees were up 4.5 percent to $28,500. Factoring in aid, the average total net cost, including room and board, was about $22,970 — lower than five years ago. At community colleges, where list prices rose 8.7 percent, net costs also are lower.
Still, while net costs are important to note, they don't tell the whole story. They don't cover living costs, which for many students are a higher obstacle than tuition, especially if they can't work as much while enrolled.
And the aid dollars that help lower the average net price don't always go to the neediest students.
Colleges award merit scholarships. Federal Pell Grants do support the neediest, and spending on them has nearly doubled in the last two years to around $35 billion (9.1 million students got grants averaging $3,828).
But the latest College Board figures highlight a rapid recent increase in indirect government support through tuition and other tax credits, which have reached almost $15 billion. Around 12 million people are now taking advantage of tax benefits averaging more than $1,200. And while recent changes make low-income families better able to take advantage of those credits, a growing proportion of the benefit goes to families earning more than $100,000.
The tax credit program, dramatically expanded in 2009, "really changes the story of how the federal government subsidizes students," said Sandy Baum, the economist who directs the College Board's reports. The credit is "not so much a middle-income benefit as we're used to thinking about it."
Justin Pope of the Associated Press.