The White House has announced two new measures that the Department of Education will start offering in January to help college graduates climb out of their student loan debt, writes Jennifer Liberto at CNN Money.
The president is under pressure to address the financial concerns faced by students and recent graduates, as earlier reported at CNN. Student loan debt, which is now outpacing credit card debt, sees the average student loan debt for the graduating class of 2009 at $24,000 including all private and federal loans, according to the Institute for College Access & Success.
“In a global economy, putting a college education within reach for every American has never been more important,” President Obama said.
“But it’s also never been more expensive. That’s why today we’re taking steps to help nearly 1.6 million Americans lower their monthly student loan payments. Steps like these won’t take the place of the bold action we need from Congress to boost our economy and create jobs, but they will make a difference. And until Congress does act, I will continue to do everything in my power to act on behalf of the American people.”
One of the proposals would push up the start date for more favorable terms on a special loan repayment program based on income, said White House domestic policy adviser Melody Barnes.
U.S. Secretary of Education Arne Duncan said his agency has regulatory power to move up the start date. He said the move would save current students originating loans next year hundreds of dollars a year.
The Administration is also planning to offer student borrowers the chance to better manage their debt by consolidating their federal student loans. Borrowers who take advantage of this consolidation option, which begins in January, would also receive up to a 0.5 percent reduction in their interest rate on some of their loans, which means lower monthly payments that would save hundreds of dollars in interest.
That’s a big win for students at risk for default. According to Department of Education numbers, the default rate rose to 8.8% in 2010, up from 7% in 2009. Default on student loans has tremendous consequences, because student loan debt follows consumers even through bankruptcy.
“We need to get the word out to students, especially students who are delinquent on student loans, that they need not default,” said Justin Draeger, president of the the National Association of Student Financial Aid Administrators.
So far, about 450,000 students are enrolled in the income-based repayment plan, but hundreds of thousands more are eligible for the repayment plan based on 15% of income earned with the debt forgiven in 25 years.
However, the White House announcement doesn’t offer much new help for existing borrowers who are already eligible for the income-based repayment plan and who have been able to consolidate federal loans for more than a year, said Mark Kantrowitz, publisher of FinAid.org.
“It preserves the cost of the loans,” Kantrowitz said. “And existing borrowers who are up to their eyebrows in debt, they don’t get the benefit” of the lower payments on the income-based repayment plan.
The White House has also released a fact sheet in an effort to help students manage their loan debts. The sheet gives information on improving the ease of making payments and reduce default risk by consolidating loans and a “Know Before You Owe” financial aid shopping sheet.