Obama’s student loan plan isn’t so new


U.S. President Barack Obama delivers remarks on education at the University of Colorado in Denver, October 26, 2011. (JASON REED/REUTERS)

I can’t help but feel that President Obama’s new student loan proposal could take its title from William Shakespeare’s comedy “Much Ado About Nothing.”

Technically, on paper, the “Pay as You Earn” plan that the president began trumpeting Wednesday is new because it’s a new regulatory action taken by the Department of Education. But that action is just fast-tracking an improvement to a benefit already mandated by Congress in an existing program.

“It brings more relief on student loans to more borrowers than the current law would allow,” said Sara Gast, a spokeswoman for the U.S. Department of Education.

The president’s announcement gives a boost to the current Income Based Repayment program, or IBR. That program allows borrowers with federal student loans — a key piece of information that is being left out of many reports — to have their monthly payments set to a reasonable amount based on their income and family size. Monthly payments can be capped at 15 percent of borrowers’ discretionary income. After 25 years of qualifying payments, the remaining debt, including interest, is forgiven.

Starting in 2014 and later, the cap is lowered to 10 percent and debt forgiven after 20 years. But under Obama’s plan, borrowers who took out student loans in 2008 and later — and who take out a new loan in 2012 — can get the lower cap and the loan forgiveness starting next year, Gast said.

Let me put it another way so you are clear on who will benefit from this change. The president’s plan does not affect borrowers who took on loans before 2008 and who do not take out a new loan next year. So, if you are already in repayment and are not planning to take out new student loans, this plan does not affect you.

The changes could help borrowers who in 2012 and later consolidate loans from the government’s direct loan program and the nixed Federal Family Education Loan (FFEL) program. Overall, this measure would provide an estimated 1.6 million borrowers with more manageable monthly payments, the administration said.

By the way, if your loans are in default, you can’t take advantage of IBR based on the current program or the president’s plan.

Got overwhelming private student loans? No soup for you!

That’s my sarcastic way of saying parents and students with oppressively high private student loans won’t see any relief.

New or not, Obama’s plan will bring much needed publicity to a program that borrowers who struggle with high payments should take advantage of. More than 36 million Americans have federal student loan debt, but fewer than 450,000 of them participate in income-based repayment, the administration said.

In the long term, however, reducing the need to borrow for higher education would help students and their families the most. Even with the relief from IBR, borrowers can be strapped with student loans for as long as two decades.

According to Federal Student Aid, an office of the U.S. Department of Education, these federal student loans are eligible to be repaid under an IBR plan: All Stafford, PLUS and consolidation loans made under either the Direct Loan or FFEL Program are eligible. The loans can be new or old and can cover any type of education (undergraduate, graduate, professional, job training).

Loans that are not eligible to be repaid under IBR: those currently in default, parent PLUS Loans (PLUS Loans that were made to parent borrowers) and consolidation loans that repaid parent PLUS Loans.

For more information on IBR, visit these Web sites: studentaid.ed.gov or www.ibrinfo.org. You can also call 1-800-4fedaid (1-800-433-3243).

Michelle Singletary writes the nationally syndicated personal finance column, “The Color of Money.”
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