Obama Administration Mulls Graduate Loan Forgiveness Plans

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Concerns that President Barack Obama’s budget, which includes graduate school student loan forgiveness, have driven critics to charge that the reforms will produce a greater cost to taxpayers than originally planned.

Allesandra Lanza, in a blog for Student Loan Ranger published in US News and World Report, has discovered a $21 billion shortfall for federal student loan programs. The lack is largely due to a projection of more borrowers using loan forgiveness after 10 to 25 years of of making income-based payments.

As many as 40% of the nation’s federal loan disbursements are for graduate student loans, of which many are more likely to have significant loan amounts forgiven under the income-based repayment plans Pay As You Earn and Public Service Loan Forgiveness, according to the New America Foundation. Dependent undergraduate students can borrow only up to $31,000 in federal student loans, and independent students can borrow as much as $57,500. This means there will likely be no balance after 10 or 20 years of payment unless the borrower has maintained an outstandingly low income over many years.

Graduate students, however, can use the Grad PLUS program to borrow up to the cost of attendance, which would cap at $138,500 for their undergraduate and graduate years of study. A graduate student, says the New America report, had a median debt load upon graduation in 2012 of $57,600. Now, one in four graduate students owes $100,000 or more, and one in 10 owes $153,000 or more in federal and private loans.

Federal loan forgiveness does not apply to private loans. Because of the amount owed by graduate school borrowers, they are more likely to apply for loan forgiveness since even after years of making payments, they may owe large balances.

In an effort to make the process of repaying student loans easier to understand and negotiate, President Obama signed a “student aid bill of rights” last week that contained policy changes and projects designed to make paying back student debt easier. Writing for Reuters, Roberta Rampton says Obama has asked the Treasury Department and the Education Department, as well as the Consumer Financial Protection Bureau, to investigate whether bankruptcy standards for student loans should be changed. President Obama detailed the plans to students at Georgia State last week.

“We’re going to require that the businesses that service your loans provide clear information about how much you owe, what your options are for repaying it, and if you’re falling behind, help you get back in good standing with reasonable fees on a reasonable timeline,” Obama told a raucous crowd of more than 9,500 students. “We’re going to take a hard look at whether we need new laws to strengthen protections for all borrowers, wherever you get your loans from,” Obama said.

The review will also focus on private student loans which have not included protections that have been given to federal student loans, like the discharge of loan debt for borrowers with permanent disabilities. The overhaul will also include, says Danielle Douglas-Gabriel of The Washington Post, several projected changes: a website launching in July of 2016, where borrowers can file complaints and provide feedback to lenders, servicers, collection agencies, and their schools; a requirement that student loan servicers alert their borrowers when their loans are transferred to another firm or are delinquent; the provision for a central point of access for borrowers to check their accounts and track their payments; and a requirement that servicers automatically apply prepayments to loans with the highest interest rates.

Every borrower has the right to an affordable repayment plan,” said Obama. “Every borrower has the right to quality customer service, reliable information, and fair treatment, even if they struggle to repay their loans.”

LatinPost’s Michael Oleaga adds that the president also delivered his memorandum to the commissioner of Social Security, the director of the Office of Management and Budget, the director of the Office of Science and Technology Policy, and the director of the Domestic Policy Council.

Education Department Secretary Arne Duncan supported the proposal:

“It is our responsibility to make sure that the more than 40 million Americans with student loans are aware of resources to help them manage their debt, and that are doing everything we can to be responsive to their needs,” said Duncan. “The Student Aid Bill of Rights builds on the efforts our Administration has been taking over the last several years to make college more affordable and continues to chip away at the burden of student debt – so no one should feel overwhelmed by their student loans.”