This proposal, which he announced in a speech at Georgia Tech on Tuesday, would "reform and streamline income-driven repayment to ensure that program benefits are targeted to the neediest borrowers and to safeguard the program for the future." In other words, the many income-based student loan systems would converged into a modified form of the previously existing "Pay As You Earn" plan. In the end, this process should turn out to be less costly and less daunting for borrowers with lower household incomes. And, as you can see from the graph below, that's something that this system desperately needs.
Currently, Pay As You Earn "caps payments at 10 percent of discretionary income and allows forgiveness after just 20 years," which is something that won't change as a result of the proposal. What will change is eligibility: Currently, only newer borrowers are eligible for this plan. However, starting in 2015, borrowers who took out loans before October 2007 or stopped borrowing by October 2011 will now be eligible. This change is expected to affect over 5 million people who are currently on less financially-forgiving plans (i.e. the income-based repayment plan, which caps payments at 15% of disposable income. The 5% increase can make an incredible difference in affordability of one is in the low income bracket).
While there are other aspects to this proposal (which is expected to be implemented in December 2015), the Pay As You Earn eligibility adjustment seems to be the most crucial. If successful, this plan could make a huge difference both on an individual and a national level. Less debt is obviously preferable to the consumer and to the country's economy as a whole. Hopefully, Obama's proposals will reach their full potential, and the 70% of students who have debt after earning their bachelor's degree will not feel the same burden that they do today.
No comments:
Post a Comment