Paying For Education

THE ISSUE: Calling it the “Pay As You Earn” executive order, President Obama has made it easier to repay student loans.

Calling it the “Pay As You Earn” executive order, President Obama has made it easier to repay student loans.

Consider that the $99,716 median household income for families headed by a four-year college graduate in 2010 was more than twice the income for those headed by a high school graduate, according to Trends in College Pricing.While those are nationwide averages, the trend also applies to a state such as Alabama, where too many people struggle to survive on low-wage jobs.


While it’s popular for political leaders in our state to be proud of low taxes, the continued reductions in state funding for higher education and the subsequent tuition and fee hikes are nothing more than a tax on college students and their parents. Shifting the cost of higher education from direct government funding to student loans makes about as much sense as treating an uninsured patient’s sinus infection in the emergency room.

Many students are dealing with this situation by borrowing more money, and a growing number are not able to repay it under the current rules. Almost 9 percent of students could not pay back their loans in 2009, up from 7 percent the previous year. The default rate in Alabama is even higher, at 9.2 percent.

To make it easier for college graduates to repay their student debt, President Obama recently issued an executive order accelerating the implementation of new rules that Congress had intended to begin in 2014. Given the economic state and the reluctance to adequately fund higher education, that is a good move.

The present law caps monthly payments at 15 percent and forgives outstanding loans after 25 years. The president’s order caps it at 10 percent and offers forgiveness after 20 years. It also allows students to consolidate federally backed loans to reduce interest rates.

Obama said the plan will save money by eliminating banks as the middle man for student loans.
It’s a small step, but every penny counts for the thousands of families who live just one pay check from ruin.

Students who borrow money have a responsibility to spend it wisely and repay it on time. Unfortunately, some students waste student loans on housing, cars and entertainment when they could work part time or live at home to cover those expenses and limit the borrowed money for tuition, books and fees.

But as long as political leaders are not willing to provide adequate funding through taxation, the student loan program will remain the emergency room for higher education.

Student loan terms change ?

President Barack Obama announced on Oct. 25 that his ‘Pay As You Earn’ executive order would take effect two years earlier than expected. The executive order prescribes a revised repayment schedule for borrowers of federal student loans, which are optional supplements designed to help students pay college expenses.

The order, initially scheduled for 2014, will provide immediate relief to student borrowers, giving them a chance to limit loan payments to an amount equal to 10 percent of their discretionary income, starting in 2012. As current law dictates, unpaid debt will be forgiven after 20 years instead of 25 years.

With the average amount of student loan debt exceeding $9,000 per year, Obama expects ‘Pay As You Earn’ to save student borrowers by decreasing monthly student loan payments.
This order will provide an estimated 6 million borrowers with more manageable monthly payments by capping their loan payments at 10 percent, according to the White House press office.
LCC students — even those unaware of the proposal — responded with optimism.

“I think it’s very important that we address the issue of student loan debt. It’s more important than ever (that Obama enacts) a reasonable program for people to pay back their loans. A lot of students struggle with their student loan debt,” said Random Butler, a second-year LCC student. “Steps need to be taken to assist those who are having difficulty paying for their education, especially since education is something that was reportedly meant to improve their lives and financial situation.”
Butler is $10,000 in debt from student loans. His current interest rate on his unsubsidized student loan is 6 percent, and his subsidized student loan interest rate is 3 percent.

“I predict that it would offer a slight incentive for new or returning students to go back to school, if they feel that their future debt is going to be more manageable,” Butler said. “I would expect that it would have a minimal, but measureable, impact on enrollment.”
About two-thirds of graduates with a bachelor’s degree have student loans, according to the College Board Project on Student Debt. While the average debt is about $24,000, 10 percent of undergraduates have loans of $40,000 or more, according to the Department of Education’s National Postsecondary Student Aid Study.

For many students, the promise of profitable future employment serves as an incentive for this investment in the future. However, the monthly payment rate on student loans goes up based on annual income. For student borrowers making less than $20,000 a year after college, the government will pay a portion of their minimum loan payment for them.

“I’m hoping if I get a decent job, I can afford to pay it faster. I would imagine it would be even more of an impact (on students getting two-year degrees) because they’re going to have a shorter turnaround to pay it back,” said Stephanie Martin, who transferred to the University of Oregon two terms ago. Martin currently owes approximately $35,000 in unsubsidized and subsidized loans.
Martin is not alone in feeling unnerved about the payment of loans and thinks there should be more options available to students.

“School is going to cost a lot, whether the ‘Pay As You Earn’ proposal will help you or not,” said first-year LCC student Kyra Giffen.
Although Giffen believes this proposal will increase enrollment and loan disbursements, she currently has two student loans, totaling $5,000, and is aware that loans will “add up.”

Recently, the political action committee MoveOn.org recommended student loan forgiveness as a means to stimulate the economy. Another website, thepetitionsite.com, accrued 54,322 signatures (of a 55,000-signature goal) on a petition asking the government to forgive student loan debt. The Department of Defense used the promise of forgiveness to bolster recruitment among students at University of Vermont-Burlington in 2010, according to a report in Debt magazine.
Two LCC instructors, economics instructor Phillip Martinez and social science instructor Stephen Candee, agreed such reasoning is sound.

“Students with debt will have more money in their pockets, and less debt — more money to spend on housing, food, necessities, etc.,” Martinez said.
“I think it’s a great move,” Candee said.

Candee contrasted this with Libertarian presidential candidate Ron Paul’s recent proposal to abolish both the Department of Education and student loans.
“This is a much better approach, being realistic about people’s ability to pay. … Colleges are going to suffer as the result of (defaults),” he said. “If consumers can spend more, then production can increase, and jobs can increase, so there’s a ripple effect to all of this.”