This week, President Barack Obama announced his plan to move forward with executive measures that would reduce student loan payments and consolidate student loans — a decision that could have a significant impact on college students and graduates nationwide.
According to the White House press release, the plan will do three things.
First, it will allow student loan recipients to lower their monthly payments from 15 to 10 percent of their annual discretionary income.
Second, the plan will “forgive the balance of [students’] debt after 20 years of payments.”
Third, the plan will allow student loan recipients to consolidate their loans in an effort to reduce borrowers’ interest rates and potentially prevent loan defaults.
Currently, the release approximates that 5.8 million borrowers have two primary loans: Direct Loans and Federal Family Education Loans.
Under Obama’s consolidation plan, borrowers would pay 0.5 percent less of the interest rates on their loans, which would result in lower monthly payments and more overall savings.
In a speech to students at Colorado University yesterday, Obama said approximately 1.6 million Americans could see reductions in their loan payments per month as a result of this initiative.
Not only would this save Americans money in the short term, Obama said, but it would also allow students to be more confident in their investments later in life.
“This is not just important to our country right now, it’s important to our country’s future,” Obama said in his speech.
In a conference call following Obama’s announcements in Colorado, United States Secretary of Education Arne Duncan called this a “very significant” plan that will help put money back in the pocket of college graduates — something that means a lot during these economic times.
“Young people today are struggling — they’re struggling to find a good paying job, and they’re struggling to find a good job at all,” Duncan said.
Duncan said he hopes that this plan prevents students from being deterred from pursuing college education and said, “college continues to be a great investment.”
“We have to educate our way to a better economy and we have to continue to make sure that college is accessible and affordable,” Duncan said.
Council of Commonwealth Student Governments President Peter Khoury said that it is a promising initiative that could positively affect Penn State students.
“With the passage of this bill and with the hopes of having this implemented by 2012, I think we’re going to see a drastic impact on the overall effect of student loans on the graduates of Penn State and across the country,” Khoury (senior-biology) said.
Khoury said though Penn State graduates are coming out of school with “a great education and great experience,” a lack of job opportunities combined with heavy student loans leaves a heavy burden on graduates.
“With the costs of education rising, the cost of living in today’s society increasing, and with the potential for coming out of your college career without a job offer, it’s a very scary reality for many students,” Khoury said.
Furthermore, Khoury emphasized that paying loans for a shorter period of time could make a big difference for graduates as they begin to plan their lives after college.
“When you take into consideration the fact that a substantial portion of paycheck will be going back to pay college bills and the interest that builds up on top of that, it’s a big deal,” Khoury said.
Penn State chapter of National Association for the Advancement of Colored People President Travis Salters called this a “step in the right direction” toward alleviating the burden on college students and graduates, the national demographic that he thinks is the “future of our country.”
“As far as innovation and progress goes, it is going to come from the educated collegiate students,” Salters (senior-broadcast journalism and African and African American studies) said. “We can’t hold them back.”
Salters also said he emphasizes the importance of student financial literacy in the context of Obama’s announcement yesterday, and said this is a good example of why the recently proposed financial literacy course is a necessary one.
“Obama is hopefully going to get this done, but if people don’t understand it, it will be hard to utilize,” Salters said.
Penn State Spokeswoman Rebekka Coakley said she imagines these changes could help students and parents see some real savings.
“The whole country is aware that it’s a bad situation for students, and the sluggish national economy is not helping the situation for them,” Coakley said. “This is one more step for them to move on without that burden.”