President Barack Obama announced a proposal Monday that would extend loan forgiveness and reduce monthly payments for students working low-income jobs after graduation.
According to a White House statement, students would receive loan forgiveness in 20 years as opposed to 25 years and monthly payments would not be more than 10 percent of student income as opposed to 15 percent.
“It’s a good change because 20 years is about when these scholars will have their own children to put through college. Students are struggling to make their payments and there are students facing financial difficulty,” said Mark Kantrow, publisher of student financial aid information website FinAid.
If a student is involved in a public service job, such as teaching or public defending, the loan forgiveness would be lowered an additional 10 years.
The proposal ensures monthly payments to pay back Federal Student Loans will not exceed 10 percent of graduates’ income and basic living allowance, Vice President Joe Biden said in a statement from the White House.
“For someone who earns $30,000 and owes $20,000 in loans, this would lower his or her monthly payment from $228 a month under the standard repayment plan to $115 a month,” Biden said.
The current policy stipulates proposals cannot exceed 15 percent of the student’s income and basic living allowance.
All the new proposals announced by the White House will apply to federal loans, as opposed to private loans, Kantrow said.
According to the White House release, the proposal for alleviating the burden of student loans came in a package of proposals from the Middle Class Task Force, chaired by Biden, which aims to make child care, retirement and paying for tuition affordable.
Kantrow estimates this will cost the US federal government $1 billion over the next five years. He also speculated the proposal will be retroactive for students currently paying off loans who have already graduated.
The proposal will be implemented into the budget for this fiscal year, which will begin Oct. 1, but there is a possibility it will be implemented sooner.
Increasing the Pell Grant, making reformations to the student loan system and making the new $2,500 American Opportunity Tax Credit for college costs permanent are also measures the federal government is taking to make college more affordable, according to the White House statement.
“The additional steps laid out today focus on easing the burdens on middle class families who are struggling in this economy, and providing the help they need to get ahead,” Obama said in the statement.
Susan Fischer, director of financial aid at University of Wisconsin, said the loan revisions might make students who are afraid to borrow more willing to take out loans.
However, she warns students to live frugally and borrow wisely.
“We want students to borrow only what they absolutely need. Borrowing when it’s convenient [and not essential] is never a good thing. I know University of Wisconsin-Madison has a very good repayment rate,” Fischer said.
