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March 02, 2010 10:01 AM Obama’s Loan Forgiveness

By Daniel Luzer

Reduce student loan payments! Oh the lure of advertising. An article by Charles Dervarics in Diverse Issues in Higher Education touts income-based repayment of student loans as one of President Obama’s signature new initiatives. According to the article:

While complex in execution, the idea has a simple premise: Students repay their loans based only on how much they earn. Since payments are pegged to income, borrowers would have the flexibility to take lower-paying public service jobs without excessive debt burden.

Basically, students could cap their monthly loan payments to ten percent of their income. This is an interesting idea but Obama isn’t exactly getting all Robert Applebaum with student debt just yet.

In fact, the Obama loan forgiveness program basically already exists, though it doesn’t actually help much. There’s the Income-Based Repayment program, which prevents students from being forced to make payments in excess of 15 percent of income. There’s also the Income Contingent Repayment program, available to students who only to borrowed money through the government-funded Direct Loan program. Only about three percent of students now take advantage of that program.

The Obama plan, which would extend some form of loan forgiveness to 25 percent of students with education debt, needs congressional approval. According to the Dervarics article, “one prominent leader already has endorsed the change. The change will ‘make repaying student loans more affordable,’ said Rep. George Miller, D-Calif., chairman of the House Education and Labor Committee.” Getting the support of George Miller, a member of the Congressional Progressive Caucus, for a proposal like this is not terribly difficult.

Considering the effort the student loan industry has expended to opposing direct lending, it seems unlikely loan forgiveness (which some have characterized as “welfare”) is going to go far.

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer

Comments

  • C. Cryn Johannsen on March 03, 2010 11:36 AM:

    I am an advocate for the indentured educated class, and hope that you join my support group. We are starting a grassroots movement that is entirely democratic - get involved! I've been in touch with the White House and Senators' offices about the student lending crisis, and want more people to take a leading role in solving this problem. If you want to be State Support Leader, please get in touch with me.

    -Cryn Johannsen, Creator of Education Matters/Student Loan Debto Advocated http://alleducationmatters.blogspot.com/

  • C. Cryn Johannsen on March 03, 2010 11:38 AM:

    Sorry for the typos. I am a teacher in Korea and have had a long, long day.

    -Cryn Johannsen, Founder of Education Matters/Student Loan Debt Advocate

    CHECK OUT THIS SHORT CLIP ABOUT THE STUDENT LENDING CRISIS AND WHAT YOU CAN DO - http://www.youtube.com/watch?v=ArC6UHatvzY&feature=player_embedded#

  • Aimee Powell on March 03, 2010 11:48 AM:

    Industry opposition shouldn't be allowed by any of us to be a barrier to fairness for student borrowers. According to a recent figure supplied by Equifax, there are now 69 million borrowers holding student loan accounts in this country. This issue affects a substantial segment of the population. As a nation, we simply can't afford to continue to allow this industry to dictate policy while we sit idly by, nor can we allow efforts to aid those in distress to be called "welfare" by an industry that was more than happy to take almost $1 billion in "aid" from taxpayers this year.

    It's also important to note that many borrowers who could benefit from the IBR and ICR programs are prevented from participation because of how the programs are structured. Both programs take joint income into account, but do not currently consider joint indebtedness. (This will change under IBR in the summer of 2010.) In addition, ICR repayment amounts can be higher, in some cases, than the borrower's payments might be under a standard ten-year repayment plan. Finally. IBR doesn't help those holding PLUS loan debt, and neither aids the growing number of borrowers struggling under the shameful terms of their private student loans.

  • Dawn on March 03, 2010 12:24 PM:

    It's not government loans that need the help, it's those of us that are so weighted down with PRIVATE loans that need debt forgiveness and caps on interest, etc. Five years after taking out a 30K loan, my loan is 75K. And they want to stretch this out to 30 years?? I'll be they do! Stop this oppression of our educated poor! Forgive student loan debt and stimulate the economy in the process!

  • Abby on March 03, 2010 12:37 PM:

    I agree! Its private loans that are killing every one! My original loan amount at Sallie Mae is 56,000 and by the time its paid it will be over 150,000 thats not including the rest of my loans! My federal ones arent the problem! I hope they help us or "forgive" us for getting an education! I work in a state funded clinic and cant get help?!!! SO I hope something changes!

  • Nick on March 03, 2010 12:45 PM:

    This is typical. The Private Student Loans are the ones that need a complete overhaul. If the lobbying in Washington cotinues nothing will change. Sallie Mae owns a lot of us. Nothing will change. Our numbers are still low and the rich get richer and the poor get poorer. We will continue to to be slaves to our debt. Our president and congressmen don't care. They have their own agenda. I hate Sallie Mae!

  • k on March 03, 2010 12:49 PM:

    I disagree! It is not only private loans that are killing everyone! I think its unfair for people with private loans to say they are the only ones that need help. I have a federal loan and it is just as bad. There are no consumer protections. The interest rate was locked in at a very high %. Now they will not allow me to consolidate a 2nd time to get a lower interest rate. I have been on forbearance and deferment and most of the amount i owe is not the principal balance but the capitalized interest.

  • willow26 on March 03, 2010 7:39 PM:

    well k I think it's all relative. I know I can never pay my federal/private combo of $124,000 in student loans. I am just wishing for an affordable payment and way to avoid default. I can't consolidate my private loans at any interest rate. Separate payments, separate on my credit report. If your goal is to actually get it paid off before you die I can see how you might have a complaint about federal loans. My federal loans are soooo easy. Defer, defer, defer, and then I always have ICR as an option if not. I know I can never pay it off, I have accepted that, so it doesn't matter what the interest rate is as long as the payment is limited to a certain percentage of my disposable income. THAT would be nice.

  • k on March 04, 2010 12:01 AM:

    To Willow26 This is a post from Ed McKinley who posted this on Inside Higher Ed. I hope Ed doesn't mind that I am posting it here. i think he makes a very good point and explains it better than I did

    Just A Little Bit Pregnant
    Posted by Ed McKinley on September 24, 2009 at 9:45am EDT
    While I applaud the efforts to recognize the predatory nature of private student loans, I resent the implication that federally guarenteed loans, that are subject to the same lack of any consumer protection, are some sort of panacea of fairness.
    Just ask any of the tens of thousands ( if not hundreds of thousands) of borrowers who are currently living under a cloud of financial ruin. Oh, but I get it. Sure federally guarenteed loans are predatory too, but they are "less" predatory, so that makes it 'OK."
    All of these loans are a do or die trying gamble. If federally guaranteed loans are so "default proof," then please explain the vast numbers of borrowers that have been forced into default.
    What is far more devastating is that once in default their are absolutely no incentives whatsoever for servicers or guarantors to work with borrowers in any reasonable way to put these loans back into good standing. Yes even federally guarenteed loans are subjected to unbelievable penalties and interest that cause the balances to quickly explode to 2,3 even 4 or more times their original value.
    Loan "rehabilitation" programs are a joke as they simply roll all that into a lifetime debt comittment that cripples most borrowers.
    You can't be just a little bit pregnant. Either you are or you are not. But, what the heck. My loans were not quite as predatory as those suffering the consequences of private loans so I guess I can just suck it up and take one for the team.
    I defaulted because early on because I was unable to pay. But when I became able to pay I found that wasn't good enough. If I could,t pay on a $38,000 loan after graduation what in God's name makes anyone think I can begin to resolve a $110,000 debt now. I've never asked for bankruptcy protection, simply the means to reach an agreement that might make it possible for me to some day repay the money I borrowed. Does anyone else see something wrong with this picture ? Retoring ALL consumer protections to ALL forms of student loan debt is the only realistic and fair way to begin to resolve long standing delinquent student loan debts and begin to bring soaring costs of college tuition and fees back under control. The ball is starting to roll, let's get it right this time.

  • J. Densmore on March 05, 2010 7:25 PM:

    Student loans are student loans people. Whether federal or private everyone is in the same boat. We were all overcharged for degrees, sold the snake oil that promised the promised land, and burdened with massive debts we can't repay in our lifetimes or discharge in bankruptcy.

    Don't drink the cool aid that says there are different student loans and student loan borrowers. All student loan borrowers must work together to get the job done - any change to the system will benefit us all.

    Warmest Regards,
    J. Densmore
    Education, Student Loans and (F)utility
    http://misplacededucation.blogspot.com/

  • Penut on March 18, 2010 3:25 AM:

    I know 'We The People of The United States' need Obama to follow through with the student loan debt forgiveness.

  • Beverly Stout on March 22, 2010 2:46 PM:

    "We The People of The United States". When I hear this I think every single person in the USA. Every person in the USA that has a student loan, whether it is Federal or a private institution student loan, they all need some help. Forgiveness can be a portion, even a 40% amount of forgiveness would be such a help to our fellow man or woman. Please help our citizens, and give them some hope of getting out of debt.

  • Paul on March 25, 2010 12:55 AM:

    Many "private loans" (i.e. Sallie Mae) can be re-consolidated into a Federal Direct Loan and then you can qualify for the Income-Based Repayment plan.

  • Studebt on May 13, 2010 6:28 PM:

    Forgive every student loan in which the graduate achieved a 3.5 or higher GPA. Is our country going to arrest 70 million college grads.? Everything in our nation and its leaders, declare-Education,Education!!!!
    Now we have it; with nowhere to earn.

  • obamahelpedme on April 15, 2011 1:32 PM:

    I am in my early 40's with two MA degrees. I am married and file separately (I'll never join my income tax with my spouse I don't care what the fees are if he decides to leave me ever I'm not carrying anything but my share of taxes and the clothes on my back).

    I really feel for you guys on this board espcially those with PRIVATE student loans. I had NO IDEA that Sallie Mae was considered a private lender. They are so HUGE! I always thought their loans were backed by the govt.

    Had my parents not been teachers themselves I would have probably fallen into the trap of going with a private lender. It just so happens that I always knew the government loans were the BEST loans. I had Wells Fargo 85k (I make $41k as a teacher relatively new to the profession).

    I started paying my loans back 2 years go at $475 a month. If I had kids I'd be SUNK.

    The new (Obama) loan doesn't help as many people as I think it should. In my case it did EXACTLY what Obama expected. A month ago, the government PAID OFF Wells Fargo ($85k) and rolled my 5% loan into the government loan and dropped my monthly payment from $474 / month to ZERO!!! Yeah ZERO!! And in 10 years my loan will be forgiven.

    There were MANY catches, however, that I could have been trapped in: Married filing jointly (I'd have to have had my spouses income included at $80k a year) if I had gone private lender vs. governmet lender and if my loan had been originated I think a poster said above, before Oct. 1998. (I apologize if that date is wrong).

    Because of my loan being reduced to ZERO (and it's re-evaluated every year and teachers we're only LOSING income!) it has allowed me to literally have a savings account for the first time I save $950 / month versus the meager $400 savings account I've had. And if I had kids I wouldn't even have the $400.

    The ZERO monthly owed balance also counts towards the 10 year payoff plan.

    So the plan (Obama) student loan forgivenes program REALLY IS THERE IT REALLY DOES WORK .but ONLY if you fall into a VERY, VERY narrow window of DATES IRS filing status and job position.

    (P.S. While teacher forgiveness loans have existed in the past they were ONLY good for teachers in poverty schools in certain subjects and pretty much eliminated 99.9% of the teaching population. In other words it was a JOKE!).

  • Maricela20Kim on August 24, 2012 2:24 AM:

    Do not a lot of money to buy a building? Don't worry, just because it's real to take the business loans to work out such problems. Thence take a college loan to buy everything you want.