Will the New Student Loan Legislation Help Students?
On March 30, 2010, President Obama signed a legislation that overhauled the current student loan debacle. The new legislation will increase Pell Grants (need based), provide income repayments, and help take away the profit that banks were making by issuing government loans.
As an economics student planning to pursue graduate school I approve of Obama’s plan since it will help increase spending (graduated students), reduce loan defaults, and provide an overall safety net for graduating students in a tough economy.
Where do you go to school and how much do you owe?
I currently attend Keene State College, which is a satellite school of the University of New Hampshire. KSC is a small public liberal arts college that costs me an average of $19,000/year to attend, which includes room and board, tuition, and books.
I chose KSC due to the low cost per year and the individualized attention that most students receive. Graduate school was on my mind since I graduated high school, and realizing the high costs of graduate schooling,
I choose to get my undergraduate degree at a public college. I currently owe about $30,000 for all four years after my parents paid for the first two years and I received merit-based scholarships.
How will the income-based repayment help you?
The PhD course at the University of New Hampshire is an advanced program that takes around 2-3 years to complete, which is what I plan on attending upon graduation.
The income-based loan repayments of 15% of my income will help me pursue my graduate degree without presenting too much of a financial burden. I currently make a decent income by freelance writing for multiple Web sites, but the income is not enough to pay off all my loans, pay for rent, food, and other expenses.
As an economics student, how will the loan repayment system benefit taxpayers?
Student loans have been laced with high interest payments, predatory lending practices, and had to be repaid 6 months after graduation from your undergraduate college.
The cost of attending my college is around $80,000 for instate, and $120,000 for out of state for all four years. With no help from a parent or scholarships, it would cost students about $1,500-$2,500/month in loan repayments over the course of 20-30 years.
The amount that students had to pay in interest was too high and often ended led to the borrowers missing payments.
The missed payments on government loans is money that tax payers never receive, and since bankruptcy does not affect student loans it made paying back fees on the loans nearly impossible. With the loan payment cap and forgiveness after 20 -years, the legislation, will not only benefit countless students, but will also revitalize the economy.
Students will no longer have to worry about whether to purchase groceries or pay their student loans; therefore, more money will be spent on goods and services than on high interest rates, which stimulates the economy.
Will there be less money available?
I think with fewer students worrying about repaying their loans, they will actually have no problem paying the government required 15% of their income. The historically low interest rates on federal loans is caused by many factors, but primarily because students cannot afford high interest loan repayments, and the weakening of the U.S. dollar.
With students, not being able to pay high interest rate loans the only viable option is to lower the interest rate to increase repayment and lessen loan defaults. Since the government is no longer issuing loans through federal banks, it allows the administrative costs to be lower, which translates into more money for the people who need it, the students.
Does the government have enough money to sustain the loans?
With the new legislation, students will have an easier time repaying their loans, which will actually accumulate more money for the federal government.
The government is sponsoring the loans instead of the previous method of going through an intermediary like Sallie Mae; therefore, the government instead of the lenders will have the profit.
The interest rates on my Sallie Mae loans were too high and had complicated terminology that could only be understood by a veteran in the finance industry.
How will this affect my education?
As mentioned earlier I plan to go to graduate school immediately after graduation, which is an expensive endeavor. The government loan system will help with repayment and new loans by making it affordable and easier.
With the new legislation it will make it affordable to stay in school longer and further my career, whereas, before the interest rates were a daily worry.