How Obama’s Student Loan
Reforms for 2012 Works
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With today's skyrocketing educational costs, many people are wondering how Obama's recent executive orders regarding student loan reforms will help their burgeoning expenses. Reforms of any kind can be confusing and overwhelming to try to understand. Here is a breakdown of the changes that will be implemented in 2012 for student loan debt holders.
Repayment Reforms
The original student loan reform plan was scheduled to begin in 2014, but with the desperate cry of students with unsustainable student loans, the federal government acted to push the date up to begin in 2012. While the Budget Control Act of 2012 covered many subjects, there are two main reforms that current and future college students should understand. It is important to note that these reforms do not apply to students that have student loan debt through private loans.
Pay as You Earn
The first aspect of the reforms is known as 'pay as you earn' which allows graduated students to repay their student loan based on their current earned income. As the system stands right now, the maximum a student has to pay is fifteen percent of their discretionary income and after twenty-five years of payments, the debt is forgiven. The new reform knocks the percentage down to ten percent of their discretionary income and forgiveness of debt after twenty years.
Consolidate Loans Program
The second part of the student loan reform is the student loan debt consolidation program which took effect as of January, 2012. Approximately six million student loan debt holders will be able to consolidate multiple student loans into one loan with an affordable monthly repayment schedule. In order to qualify and have the ability to consolidate loans, they have to be government sponsored. Under this reform, if a student loan borrower consolidates their loans, they will only have to pay one monthly payment and receive a 0.5% rate reduction.
Loss of Subsidy for Graduate Students
Beginning July 1, professional and graduate students will lose the option for acquiring a Stafford Loan and not accumulating interest while they are still in school. Since these loans are no longer subsidized, the costs of future student loans will increase; although, current student loans are not affected by this particular change. These types of loans are being eliminated to try and ensure the sustainability of the deeply indebted Pell Grant program. After July 1, there will be no federal student loan that will be subsidized for any level of education.
Loss of Rebate
Under the old student loan laws, students pay a one percent origination fee for a Stafford Loan and four percent for a PLUS loan. The student was able to receive a small percent of their origination fees in the form of a rebate; however, this was eliminated in the course of the new student loan reforms.
While the federal government believes their student loan reforms will help millions of college students, others believe that when compared to the enormity of issues facing college education costs; these reforms do remarkably little to address the entire situation.