Obama's New Student Loan Plan: Could You Pay Less?

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The Obama administration estimates that close to 8 million borrowers will be affected by the student loan initiative trumpeted by the president in a speech at the University of Colorado-Denver on Wednesday. But more than 36 million Americans currently have federal student loan debt, meaning that the administration's proposal -- a two-pronged approach aimed at consolidating and capping loan payments for certain borrowers -- will target only a fraction of the problem.

But that problem is admittedly immense: The total amount of outstanding student loan debt in the U.S. is set to cross the eye-popping $1 trillion mark for the first time this year, according to a paper from the Federal Reserve Bank of New York, as reported on by USA Today.

The White House is touting its latest measures as part of an effort to advance economic policy by executive order, bypassing the blockage of congressional Republicans. The administration's statement emphasizes that borrowers may be struggling to manage bills and support families, and the plan will put more money back in their pockets.

Nevertheless, the effects are not expected to be enormous, given the plan's limited nature -- a reflection of the president's need to act without congressional support. "These are not radical things," The Wall Street Journal's Laura Meckler explained. "If you're going to go out and make a big case for re-election, these are not the kinds of things you run TV ads on. These are fairly small, targeted measures."

Are you one of the nearly 8 million who could benefit from Obama's latest initiative? Here's a closer look at the president's proposal:

1. Loan Consolidation

The new plan lets the approximately 6 million borrowers consolidate two student loans (a private loan and a government loan) into one at a lower interest rate -- a reduction of up to 0.5%. Instead of making two payments a month, these borrowers will make one.

Consolidation benefits those who took out student loans under the old system -- ended in 2010 -- in which loans were privately-issued but government backed, known as Federal Family Education Loans. All new federal student loans are now direct, government-issued loans, but there are $400 billion in old-style loans outstanding.

Those who want to participate in the consolidation initiative don't have to do anything just yet. Early next year, the Department of Education will contact qualified borrowers and provide more information.

The press release offers an example of potential savings, saying that a borrower with two loans totaling $37,500 can expect to save nearly $1,000 in interest.

2. Monthly Payment Reduction

The White House estimates that more than 1.6 million student borrowers could see their monthly payments drop under this part of the plan, which basically speeds up an initiative announced last year dubbed "Pay As You Earn."

Currently, borrowers can cap their monthly student loan payments at 15% of their discretionary income. That figure is scheduled to drop to 10% on July 1, 2014. But with the accelerated "Pay as You Earn," some borrowers could access this option in 2012.

As an example, the White House offers:
"A nurse who is earning $45,000 and has $60,000 in federal student loans. Under the standard repayment plan, this borrower's monthly repayment amount is $690. The currently available IBR plan would reduce this borrower's payment by $332 to $358. President Obama's improved 'Pay As You Earn' plan will reduce her payment by an additional $119 to a more manageable $239 -- a total reduction of $451 a month.
Borrowers wondering whether they qualify for income-based repayment can visit www.studentaid.gov/ibr for more information.

3. "Know Before You Owe"

The Department of Education is teaming up with the Consumer Financial Protection Bureau to create a model financial aid disclosure form, informally dubbed a "Financial Aid Shopping Sheet," which would allow "colleges and universities ... to help students better understand the type and amount of aid they qualify for and easily compare aid packages offered by different institutions," in the words of the White House statement. The intent is to produce student borrowers who understand their monthly loan payments post-graduation, as well as additional costs not covered by financial aid.

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December 30 2011 at 12:27 AM Report abuse rate up rate down Reply
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November 20 2011 at 2:08 PM Report abuse rate up rate down Reply
savemycountry911

An outrageous attempt to buy votes.

November 01 2011 at 7:56 PM Report abuse rate up rate down Reply
AW

Obama needs to encourage businesses to give new grads from college a chance. I have heard so many times that during an interview college grads are told they need experience before they can take the job. After spending several thousands of dollars and several years in college, I think this is experience. That is what college is for!! Make it easier for new grads to get a decent job and they can get to work paying loans back.. College is supposed to be the way to a better life, so kids go out and spend all this money at over priced colleges, then these companies treat grads like it is nothing and they need experience.

November 01 2011 at 8:15 AM Report abuse rate up rate down Reply
daballofire

The avg loan is $24,000 with 25 years to pay that is $960 per year to pay off. About 1/10th their car loan. I don't even see why this is an issue. They can pay this loan off BY WORKING MINIMUM WAGE AN PAYING 48 CENTS AN HOUR to their loan principal. The Anointed One just wants to buy votes from children who are too ignorant to vote in the first place.

October 31 2011 at 1:38 PM Report abuse +2 rate up rate down Reply
daballofire

Obama the Momma is just trying to buy the young ignorant vote again with his Hopey Changy I Forgave Your Loan thing again. When it is the American Taxpayer who is doing the forgiving. Obama hates the Tax Payer because none of them vote for Marxists posing as Socialist, liberal, progressive Democrats.

October 31 2011 at 1:06 PM Report abuse +4 rate up rate down Reply
ha6ai

How stupid are college students? If they can't figure out that this is just another Obama scam, and consider voting for this character anyway - they should not have bothered getting a degree.

Colleges are overfunded, their staff overpaid and often unqualified, and colleges are as a result, too expensive. If you can't afford to repay a loan, don't borrow.

October 31 2011 at 3:31 AM Report abuse +3 rate up rate down Reply
gmydogbud

What do they teach at Colleges, these days? Heard a news woman reporting on the snow, this morning and she said the following: The electric company SAY, that lines are down!

October 30 2011 at 9:12 PM Report abuse +1 rate up rate down Reply
1 reply to gmydogbud's comment
ha6ai

The talking heads, news readers, and talk radio "pundits" tend to be ignorant and undereducated. Its not just the result of affirmative action; its an endemic problem.

October 31 2011 at 3:36 AM Report abuse +1 rate up rate down Reply
1 reply to ha6ai's comment
gmydogbud

With respect: I don't believe my comments refered in anyway to "Affirmative Action" - I spoke to those teaching our young people in Colleges, these days!

October 31 2011 at 2:15 PM Report abuse +1 rate up rate down
gmydogbud

Heard that President Obama's Student Loan Plan will save students a big $10.00 per month! When will students protest at the Colleges they attend, as it is the Professors who make the Big Bucks, that cause the students to pay so much for their education! These highly paid socialist professors are the people who should put their money where their mouths are! They are the people who demand and get High Wages, for which students and their parents must pay ! When will President Obama call for their "Shared Sacrifice"?

October 30 2011 at 9:06 PM Report abuse +1 rate up rate down Reply
darkstar58

Another Bozo democratic handout. Since these loans are guaranteed by the taxpayers, the decision to forgive the balance after 20 years means taxpayers pay the balance off at that time.
Another foolish entitlement reflecting how Democrats create smoke and mirror short term programs favoring targeted populations only, while hiding the actual cost to all taxpayers.
I accept relief and longer payment options BUT not debt forgiveness on my dime.

October 29 2011 at 9:00 AM Report abuse +8 rate up rate down Reply
1 reply to darkstar58's comment
redbaron45

GUESS YOU WOULD RATHER GIVE MONEY TO BIG OIL COMPANIES AND BIG BANKS. AT LEAST IT IS GOING TO THE AMERICAN PEOPLE AND NOT SOME RICH CORPORATION. REPUBLICANS ONLY CARE ABOUT THE RICH AND BIG BUSINESS.

October 30 2011 at 10:01 AM Report abuse -4 rate up rate down Reply
1 reply to redbaron45's comment
daballofire

Big Bankls paid back all of taxpayer loans, they were not gifts, in less than 2 years with big interest included makingnthe pak payers a bunch of money. How are you coming wth your loans?

October 31 2011 at 1:08 PM Report abuse rate up rate down