With Soaring Tuition Costs, Help Is Available For Student Loans

EAST TEXAS - The price of attending college continues to rise, and the debt accumulated by student loans is also showing a dramatic increase; but help is out there.

In an October report in USA Today it was noted, this year for the first time ever, total student loan debt exceeds total credit card debt in this country, with $850 billion outstanding. The graduating class of 2009 at four-year nonprofit colleges faces an average debt of $24,000, according to the Institute for College Access & Success. Also, the United States Department of Labor has stated that, “In 2010, the unemployment rate for college graduates age 24 and younger rose to 9.4 percent, the highest since the department began keeping records in 1985.”

As a result of this and partly because of the attention that has been focused on this issue by the various Occupy movements, the federal government has stepped in with a two-pronged plan to help ease the debt of current and former students. Part of this plan is already in existence through the Income-Based Repayment Plan. The way this plan currently works is students who graduate and enroll in this plan are charged 15 percent of their monthly discretionary  income to help pay off their student loans. The debt is forgiven after 25 years. Discretionary income is the amount of an individual’s income that is left for spending, investing or saving after taxes and personal necessities (i.e. food, shelter, and clothing) have been paid. Discretionary income includes money spent on luxury items, vacations and non-essential goods and services.

The U.S. Congress has initiated a plan that will take effect in 2014 that “would drop the monthly payment for loans originated that year to 10 percent of discretionary income and would forgive all debt after 20 years,” according to reports on CNN. The White House is attempting to speed up the timetable and begin the plan in 2012.

“We’re using executive authority — stepping into a gap, at no cost to the taxpayer, creating a program that creates additional relief to the students,” White Hose Domestic Policy Adviser Melody Barnes said.

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 way the payments are calculated is based on any income above 150 percent of the poverty level. As an example, for a graduate living alone, the payments would be 15 percent of any income made above $16,335 (150 percent of 2011 poverty level) under the current plan and 10 percent on the proposed changes. If a college grad lands a job with a $45,000 annual income, the payments would be based off of 10 percent of roughly $28,000 or between $200 and $250 a month.

The second part of the  proposal would encourage students who have several different types of federal loans to consolidate their loans. They would then be eligible to receive a small interest rate break of .5 percent.

According to the CNN report, “Last year, the federal government got out of the business of guaranteeing student loans made by private banks called Federal Family Education Loans, including Stafford loans, and moved to start offering loans directly to students. But lots of graduates are still paying off those federally backed loans, originated by private student lenders such as Sallie Mae and Nelnet.”

The federal government is hoping students with both direct loans and federally backed loans will consolidate all their federal loans into direct loans. The consolidation process has been available in the past, but up until now there has been no financial incentive to do so, since the interest rates were the same.

Another benefit for student loan borrowers who convert into direct loans is that they’d qualify for other debt forgiveness programs if they work in public service or at non profits for 10 years.

Will Johnson may be reached via e-mail at wjohnson@messenger-news.com