College students all over America have aspirations of graduating and starting their new careers debt free, and this hope may become a reality for many college students in the near future.
President Barrack Obama said in 2011, “Student loan debt has now surpassed the credit card debt for the first time ever. It is painful for the economy, and it is harmful to our recovery because that money is not going to help businesses grow.”
Obama recently announced his Student Loan Forgiveness Plan, designed to virtually eliminate student debt. This plan includes the “Pay as You Earn” plan and the “Know Before You Owe” project. U.S. Secretary of Education Arne Duncan supports this higher education plan.
“College students are entering one of the toughest job markets, and we have a way to help them save money by consolidating their debt and capping their loan payments. And we can do it at no cost to the taxpayer,” Duncan said.
As of January this year, an estimated six million students and recent college graduates will be able to consolidate their loans and reduce their interest rates. These benefits will come from the “Pay as You Earn” plan. Federal loan interest rates will be lowered from 15 percent to 10 percent of the students’ annual income.
Previously, student loan debt had been forgiven after 25 years, but this plan allows debt to be forgiven after 20 years. It also allows public service workers’ debts to be forgiven after 10 years. This option is only available to students who have federal loans through the Stafford, Grad Plus, or Perkins Programs.
“Pay as You Earn” offers a new debt consolidation option which allows students to make a single payment to the same lender that covers multiple loans. Borrowers are also offered the incentive of a 0.5 percent reduction on their interest rates for choosing the new debt consolidation option.
Even the U.S. Small Business Administration is jumping on the bandwagon. They will help entrepreneurs with the process of reducing their monthly student payments.
A Young Entrepreneur Council spokesperson said, “We promise to pay down remaining federal student loan obligations over the next three years while simultaneously investing $10 million in up to 100 small business start-ups.”
In order to be eligible for the “Pay as You Earn” plan, a student must meet certain requirements. Borrowers must have taken out loans in 2008 or later and will take out loans in 2014 or later. Student loans cannot be in default, and must be from at least one federal loan and one loan from a bank. Borrowers who are already in repayment of their student loans do not qualify.
The “Know Before You Owe” project consists of a Financial Aid Shopping Sheet that has been created by the Department of Education and the Consumer of Financial Protection Bureau.
This form makes all of the total costs and risks of student loans clear. It also outlines costs not covered by Federal Aid and repayments after graduation.
– Tiffany Babb, Contributing Writer