A lift from depression or regressive progression?

President Barack Obama has recently proposed a plan to help college graduates save hundreds of dollars while paying off their federal student loans and to pay those loans off in a shorter amount of time.

President Obama. Photo by Creative Commons.

Under current law, students who take out loans must pay them back after graduation from 15% of their personal income (not including personal taxes) annually for 25 years. After 25 years, they are forgiven for their remaining debt.

Obama said that he will implement an executive order that allows borrowers to consolidate any loans (for those borrowing from both the Federal Family Education Loan Program and a direct loan) and pay it all back from 10% of their personal income in 20 years before being relieved of their debt.

At a recent speech Obama delivered at the University of Colorado Denver, he mentioned that steps are being taken to enact this executive order by 2012 rather than 2014 as previously suggested, which, to my knowledge, will only be affective for those who borrow starting in January next year. Additionally, Obama claims that the taxpayer will not be affected by this new system. However, in all of my research, nowhere have I read a clear explanation of how Obama plans to carry out this order without it eventually becoming a burden on the economy and ultimately on the taxpayer.

For the first time ever, student loan debt has risen higher than credit card debt. Our country is trillions of dollars in debt, yet nonexistent money is still being paid out each year to those seeking student loans.

If college graduates will be required to pay back the debt at a rate of 10% of their annual income instead of 15%, it seems to me in the short term that the US government will receive a great deal less money being paid back from the lower income percentage, and if graduates will be on a 20-year payback/debt relief plan instead of a 25-year plan, the government will lose additional funds from five years of interest because graduates will be forgiven for their remaining debt in a far shorter time period. As a result, this overall loss of revenue both in the short term and long term will ultimately be a burden on the taxpayer.

Students and friends that I talked to around campus held a wide spectrum of views on this topic. Not many were aware of Obama’s proposal, some were apathetic toward it, and some appeared ready to support any idea from the president. Others appeared only concerned for themselves and intrigued by the idea of saving themselves a little money. Some suggested that perhaps Obama is aiming to appeal to young people’s emotions, especially those borrowing student loans, in order to increase his chances for re-election.

While I support the idea of helping struggling graduates, this gives life to many questions. How can this work? Why didn’t he do this sooner or work to relieve those who are struggling right now – the people who went to college during the initial economic collapse? Who will benefit from this plan? Obama mentioned 1.6 million students could benefit – what about the other 20 plus million borrowers? Who exactly qualifies? How is the taxpayer unaffected? Doesn’t everything done in this country derive from the taxpayer? Is this a technique far too complex for the average US citizen to comprehend? You be the judge.

Are student loans holding you back? Comic Freom Creative Commons.

The following links may be helpful in determining your financial aid:

An online ranking tool that provides the public with an opportunity to weigh in on the financial aid shopping sheet – www.consumerfinance.gov/students/knowbeforeyouowe.

Borrowers looking to determine whether or not income-based repayment is the right option for them should visit – www.studentaid.gov/ibr.

The U.S. Small Business Administration gives guidance to young entrepreneurs through the process of reducing their monthly student loan payments – www.sba.gov/startupamerica/student-startup-plan.