WASHINGTON, October 25th – Statement of Rich Williams, Higher Education Advocate for the Student PIRGs:
Tomorrow, President Obama will announce a series of initiatives that will reduce the burden of student loan debt that millions experience after graduation.
“Student debt levels have skyrocketed. Hundreds of thousands of student loan borrowers wear a financial straightjacket once repayment begins. Tools exist to help borrowers break free from negative consequences like default but they aren’t aware that these tools exist and they need the tools sooner.”
Income BasedRepayment (IBR) was created in 2007 to allow borrowers to repay their loans as a portion of their salary and is a key tool students can use to help manage their debt after graduation. Currently, borrowers can enter IBR and cap their monthly loan payments at 15% of their discretionary income. After 25 years, remaining debt is forgiven. In 2010, the program was improved. For new loans originated in 2014 and after, monthly payments can be capped at 10% of income and the remainder forgiven after 20 years.
The Obama administration will announce an effort to better educate students about Income Based Repayment and will propose a gap measure to accelerate the start of the 10% discretionary income cap for some student loan borrowers in 2012. This benefit would be available for those who have borrowed a federal student loan since 2008 and have another loan starting in 2012.
“With millions of student borrowers saddled with unmanageable levels of debt, these valuable benefits cannot start a moment too soon,” said Williams.
Second, Obama will announce a loan consolidation initiative to make it easier for borrowers with multiple loans to pay their bills and avoid default. The benefit will apply to student borrowers with both a loan from the Department of Education and a loan through the discontinued Federal Family Education Loan program – a group of borrowers who are more likely to default.
“Many students are overwhelmed with one foot in two lending systems, paying multiple lenders each month and looking on helplessly as their loan changes hands multiple times,” said Williams. “Allowing these borrowers to consolidate multiple loans into one payment clarifies confusion and cuts red tape for borrowers.”
Third, the Administration will announce a new initiative to improve financial literacy tools for students before they enter college. The Department of Education will partner with the Consumer Financial Protection Bureau to tailor a model financial aid form that will allow students to better understand college costs, including loan debt and repayment.
“Currently almost every school has a different financial aid form which makes it difficult for a student to figure out their financial aid award, including their loan package. A model financial aid form enables students and their families to better understand the true cost of college attendance school by school, as well as helps make an apples-to-apples comparison of those costs.”