Dept of Education Attempts to Get More Students Approved for Loans

The Department of Education is going to make it easier for students to get a college loan, even if they or their parents have less than great credit histories, according to Andrew Taylor of Associated Press.  

These changes will make getting a loan from the government’s Direct Loan program less restrictive.  Up until now, students with “adverse debt” were denied automatically, unless they had extenuating circumstances.  Sometimes students in this situation are required to have loan counseling.

The new regulations allow up to $2,085 debt or written-off debt and would shorten the debt securitization from five years to two.  Under these standards about 370,000 students could now qualify for direct loans.

“These changes allow us to continue to be good stewards of taxpayer dollars and open the doors of college to ensure all students have the opportunity to walk through them,” Education Secretary Arne Duncan said.

This is the first update of the program since it was established in 1994.  The regulations will take effect in the fall of 2015.

The amount of debt that graduates are taking with them after college has been steadily rising for years.  Approximately 70% of graduates have debt.  Sometimes, even after 24 years, graduates who borrowed $25,000, are less happy on their jobs, are less physically fit, and struggle with finances more than their counterparts who had no debt when graduating, according to a recent poll of college graduates.

“These results offer a new dimension of how college debt affects the rest of your life and it gives us more cause for concern,” said Brandon Busteed, executive director of Gallup Education, which conducted the poll in conjunction with Purdue University. “It’s bad for all aspects of your life.”

In March, 30,000 graduates were surveyed, of all ages in 50 states.  The focus was which aspects of having a college degree have value.  The answers are subjective, so they could be correlational or causal. The survey found that denoting whether the mother had a college education is a good indicator of socioeconomic class.  Even with that variable, graduates with large debt were worse off, says Douglas Belkin, writing for The Wall Street Journal.

The survey included categories to assess whether people had a sense of purpose in their lives.

• Supportive relationships

• Financial security

• A sense of community

• Physical well-being

Graduates who finished college between 2000-2014 with more than $50,000 in debt were markedly worse off in all these categories. Busteed said that one of the results of the undermining of people’s sense of purpose is that they may take higher-paying jobs, rather than jobs they are really interested in having.

Another is not having the flexibility to leave a job and try something new.  Significantly, high debt can also delay the purchasing of a home, and getting married.  Both of which could lead to a delay in connecting to a community.  The burden of debt can even affect a person’s physical health.

The poll itself, say Andrew Duncan and Stephanie Kafka writing for Gallup,  points out that there are many factors which can influence the outcomes of college education, not just salaries and and employment rates.  The Gallup-Purdue Index provides an extensive examination of the relationship of the college experience and whether graduates have great jobs and great lives.

President Barack Obama recently commented on the challenge of paying for college, saying, “At a time when higher education has never been more important, it’s also never been more expensive. Over the last three decades, the average tuition at a public university has more than tripled.” But, as Obama conceded in the same speech, college is a “smart investment.” The wisdom of this investment is often framed in terms of the economic benefits a degree can bring, rather than on a broader set of criteria, such as if a college degree — and its associated costs — leads to a rewarding, healthy life in the long run.

Naturally, many graduates are taking advantage of loan forgiveness programs.  The number of people enrolled in such programs has more than doubled in the past years, and will continue to grow according to data from the Department of Education, says Blake Neff of The Daily Caller.   The two programs available to those who have taken out government-backed student loans are Income-Based Repayment (IBR) and Pay as You Earn (PAYE).

IBR was started for students who began taking out loans before 2007.  They cap their loans at 15% of a person’s discretionary income.  The loan balance is forgiven after 25 years of payment.

PAYE has a maximum payment of 10% of discretionary income and the loan is forgiven after 20 years of payment.  In both programs, the forgiveness period is lowered to 10 years if the graduate works in the “public service” arena.  The number of income-based repayment programs keeps increasing because college tuition continues to rise and tuitions are outrunning the growth of career paths that can pay off exorbitant loan amounts.