Thursday, November 10, 2011

White House lowers student loan cap

By Marguerite Clemens, Guest Writer

Students may have a new option for paying loans. The White House released the national press statement “Help Americans Manage Student Loan Debt,” Oct. 25. The release included ways to help borrowers with their loan debt, such as capping student loan payments from 15 percent of the discretionary income to 10 percent, consolidating student loans and adding a section called “Know Before You Owe,” which will provide students with better information to make college decisions.

“Changing the payment percent cap from 15 percent to 10 percent of income will have virtually no impact on the national debt,” Professor of Economics Karen Travis said. “The entire education share of the Federal Budget is small, and student loans as a share of that even smaller, with this marginal change in amount of monthly payments affecting an even smaller share.”

Though this change will have little effect on the national debt, it will have a great effect on individuals’ debt, making payments smaller and extending the amount of time they have to be paid.

“If these caps greatly extend the time period over which the borrower has to pay back the loan, the overall amount of interest that is paid may not go down but actually increase,” Travis said. “If they have 20 years to make smaller payments, for example, the interest could be much greater.”

Professor of Political Science Setsuko Tamura said the lower monthly payment plan could ultimately help students “to catch up with their payment schedule and to take lower-paying jobs, such as teaching, which are meaningful to them and society.”

A great deal of this policy is dependent on the student’s situation.

Overall, student loan debt is a big problem for many U.S. citizens, Travis said.

“Tuition is rising at a higher rate of inflation than other goods, except for medical care, and more so than median wages.” Travis said. “Some people are borrowing excessively and then facing poor job prospects.”

Tamura said she agrees that student loan debt is a major problem.

“The situation here is terribly serious,” Tamura said. “There are no other countries where students have mortgage scale student loans just for undergraduate education. In Japan, the two top universities are public universities and their yearly tuition is between $4,000-7,000, except for dental or medical schools.”

First-year Cassie Miller said she thinks student loan debt is a major concern, but she believes the government is working to make it easier.

Travis said if the “Know Before you Owe” portion of the White House’s press release is “oversimplified,” it won’t function as it is intended.

“I can understand wanting to make comparisons easier, but I’m not sure if the form will really be able to accurately capture the real amount of the differences or not,” Travis said.

The success of this new policy concerning student loans won’t be measured until the actual form is used.

“Students and their parents should know what financial risks they have before taking loans,” Travis said.