Obama’s New Student Loan Forgiveness Plan

Education – a costly affair

Education is the essence of life, especially student life. The quality and quantity of education dictates to a large extent how you will perform in your future endeavors. Though it is not the only criterion that ensures success, but a firm grounding on the education aspect does provide a launch pad for a person to channelize his talents, prioritize his aspirations and get a grip on life. However, education, specifically higher education comes at a premium. The cost of education has forced many aspiring students to drop out of schools and colleges as they and their family have not been able to muster adequate funds to carry on further studies.

Education loan – the mess

However, the picture is not very rosy for all, as many students are indebted with huge amounts that they are finding difficult to repay. The severity of the education loans is such that the present outstanding debt of the United States has crossed $1 Trillion, which is more than the entire nation’s credit card debt. The College Board has estimated that approximately 56% of students pursuing bachelor’s degree at public schools have completed their education with a debt burden of about $22,000, while the figures for private institutions was 65% students with debt of $28,000. The national average of default in repayment has also increased rapidly.

President Obama’s new plan

To arrest the growing menace of indebtedness of students, President Obama is in the process of accelerating the passing of a law by Congress that will help students repay their debts better. This has been referred to as the reforms to the federal student loan program and will help millions of student borrowers repay their debts much faster. The salient aspects of the program are listed below:-

If a student has taken a direct federal loan (from the government) as well as a guaranteed federal loan (from a bank), the total cost can be reduced by merging the two. The advantage will be that the monthly repayment towards the latter loan will be reduced by 0.25%. In case the borrower enrolls into an automatic repayment scheme, an additional 0.25% will be deducted from all loans.

In case the borrower qualifies for the income-based repayment program, the mandatory repayment out of his discretionary annual income will be reduced to 10% from the present 15% and the remaining debt will be forgiven after a period of 20 years in place of 25 years.

 

The cons

The program once implemented will surely aid people burdened with the education loan debt. Those people who are eligible for the plan will be able to keep a better grip over their loans and will manage to avoid defaults as well as have the advantage of repaying federal loans faster. However, the program will not be applicable for private student loans that are much tougher to repay due to difficult terms of lending and higher rates of interest. This means that President Obama’s new student loan plan will not be helpful to people across the board..