Nearly 1 out of 5 households in the United States hold
student debt (Pew Research Center, 2012).
The government currently offers an IBR plan that forgives federal
student loan debt after 25 years, if borrowers pay at least 15% of their income
each year. However, the Obama
administration passed a new plan, that reduces the payment rate from 15% to 10%
of income, and forgives federal student loan debt after 20 consecutive years of
repayment (Stratford, 2012). The White
House Blog (2012) boasts, “1.6 million people will be able to cap their monthly
student loan payment at 10 percent of their income, beginning in 2012” (wh.gov,
2012). However, relatively few people have
enrolled in this repayment plan so far.
In order to qualify for income based
repayment, students must have partial financial hardship: the monthly amount they
are required to pay on IBR-eligible loans under a 10-year Standard Repayment Plan must be higher than
the monthly amount required under IBR (wh.gov, 2012). Once students initially qualify for IBR,
they can continue to make payments under the plan even if they no longer have a
partial financial hardship- which sounds like a surprisingly good deal (wh.gov, 2012). Why, then, are so few
borrowers asking advantage of it? Who
benefits?
Stratford (2012) fears that this
program hurts the US economy. He argues
IBR mostly benefits high-income borrowers with high debt loads, rather than low
income borrowers. According to Stratford
(2012), “Low-income
borrowers—those earning less than $25,000 a year—will see their monthly
payments shrink by $5 to $20… However, high-income borrowers with high debt
loads from, say, graduate or professional school will see hundreds of thousands
of dollars of their loan debt forgiven after making payments for 20 years”. Secondly, Stratford argues IBR gives graduate
and professional schools an incentive to keep costs high, because ultimately students
know they will not have to pay the cost.
Meiburg (2012) offers an alternative,
stating that IBR give students the ability to pursue meaningful careers that
are relatively low-paying, but nevertheless require expensive degrees. For
example, working as a social worker, or, working as an academic advisor- for
those of us graduating from USC’s PASA program this fall. IBR helps student
like myself, who are going into thousands of dollars of debt to secure a job
that, despite low pay, provides a valuable service. The focus should be on developing more loan
repayment options to prevent students from defaulting.
References
Stratford
, Michael . "Chronicle of Higher Education ." Chronicle of Higher
Education . (2012): n. page. Print.
<chronicle.com/article/Obamas-Loan-Repayment-Plan/135144/?cid=at&utm_source=at&utm_medium=en>.
Meiburg
, Jonathan . "Huffington Post ." Huffington Post . (2012): n.
page. Print. <www.huffingtonpost.com/jonathan-meiburg/income-based-repayment_b_1964364.html>.
United
States. Department of Education. Federal Student Aid . 2012. Web.
<http://studentaid.ed.gov>.
"Pew
Research Center Publications." Pew Research Center Publications.
(2012): n. page. Web. 17 Oct. 2012. <http://pewresearch.org/pubs/2369/student-debt-record-number-households-owe-young-poor-college-university>.
It is interesting to look at these different payment options, as more students are now continuing on to graduate school than in previous years, adding to the debt they've accrued in undergrad. However, as the cost of tuition goes up, many students are now researching, not just ways to pay back their loans, but whether it is financially worth it to pursue certain graduate degrees. Check out the most recent list from U.S. News & World Report "College Majors with the Best Return of Investment http://bit.ly/QJhb6L
ReplyDeleteWorking in admissions, I get more questions about financial aid and career placements than about actual admission requirements. With tuition so high and financial aid options so limited, students care more about a return on their investment than the actual learning experience. Fewer students want to be teachers or social workers-- or at least get their degree from schools like USC because the cost of the degree isn't worth the debt. Not only should there be more loan repayment options, but there should be more loan forgiveness programs in order to incentivize more students to pursue lower paying jobs in public service.
ReplyDeleteAlyssa, I think you made a great point at the end of this post--the jobs that are most needed in society, require expensive degrees, but minimal pay. It's unfortunate that some people cannot pursue what they love because of the potential financial hardships. The current state of the economy is quite contradictory to society's expectations. Students want to save money, by choosing alternative career paths that may not need a master's or terminal degree; however, employers only want students that have that graduate-level education. From a student's perspective, is there even anything to consider when it comes to debating whether it is financially worth it to pursue certain graduate degrees? I think no matter way you spin it, getting that graduate degree will be the only way to advance anywhere in this economy.
ReplyDelete-Paul R.
In your conclusion, you bring up what I was thinking throughout your post - this program will hopefully help me pay off the debt from my graduate degree at USC! Income based repayment plans may only serve a certain population, but there are other repayment plans in place as well. The system is not perfect, and many students have large amounts of debt, but the hope is that one of the repayment plans available to graduates will work for each individual repaying loans. For instance, the example you gave: students with expensive graduate degrees in low-paying fields. Also, the changes to the repayment plan are still new, so it will be interesting to see if the number of students who utilize this plan increases.
ReplyDeleteGreat topic. I agree with what other have said. I am example of someone who is scoped out of any debt forgiveness plans. Furthmore, a large amount of my student debt came from private loans which isn't considered in any of these programs (and understandably so). This is a major problem - I'd love to see more repayment options.
ReplyDelete- Scott Simon
This program will continue to grow in popularity. I often talk about IBR to friends who had no idea it existed. Like many things new, it will take time to catch on, but I agree, that the benefits are numerous, and repayment will become a seamless (and automatic) part of your budget.
ReplyDeleteI definitely agree with you Alyssa and Sarah, there should definitely be more repayment options and loan forgiveness programs. Though many of us consider the money we have spent on our educations as investments not everyone feels the same way. I think that if more people knew that paying back their loans could be manageable, there would be more individuals pursuing their true interests instead of careers that they believe will have the greatest financial return.
ReplyDelete