By Kimberly Hefling
WASHINGTON — Recognizing college students and recent graduates are facing rising tuition prices and burdensome student loan debt, President Barack Obama announced a plan that seeks to lessen the burden of paying back student loans.
Some questions and answers about student loans:
Q: How big a problem is student loan debt?
A: Total outstanding student debt has passed $1 trillion, more than the nation’s credit card debt. The College Board said Wednesday that the average in-state tuition and fees at four-year public colleges rose an additional $631 this fall, or about 8 percent, compared with a year ago. The cost of a full credit load has passed $8,000 — an all-time high.
The board said about 56 percent of bachelor’s degree recipients at public schools graduated with debt averaging about $22,000. From private nonprofit universities, 65 percent graduated with debt averaging about $28,000. Those average amounts usually are still manageable, for those who finish a degree. But they are concerned about the rate of increase, the growing numbers with substantially more debt and the increase in those in over their heads repaying them. The Education Department said in September that the national student loan default rate for the 2009 budget year had risen to 8.8 percent.
Q: What does Obama’s plan do?
A: Obama will accelerate a law passed last year that lowers the maximum required payment on student loans from 15 percent of discretionary income annually to 10 percent for eligible borrowers. It goes into effect next year, instead of 2014. The remaining debt would be forgiven after 20 years, instead of 25. About 1.6 million borrowers could be affected.
Obama will allow borrowers who have a loan from the Federal Family Education Loan Program and a direct loan from the government to consolidate them at an interest rate of up to a half percentage point less. This could affect 5.8 million borrowers.
Q: What’s the difference between government-backed student loans and private student loans? And, does Obama’s plan impact private loan borrowers?
A: Before the law change, borrowers wanting a student loan backed by the government could get loans directly from the government or from the Federal Family Education Loan Program. Those from the Federal Family Education Loan Program were issued by private lenders, but basically backed by the government. The law eliminated the private lenders’ role as middlemen and made all such loans direct loans.
Private loans are ones students typically get when they get all they can get from the government. They’re typically from banks, and they are where students tend to get into the most trouble because they don’t have the same government protections and usually have higher interest rates. Obama’s plan won’t help students stuck in those. The amount of private lending has fallen sharply in recent years as lenders have cut back and demanded higher credit scores. However, for extremely expensive colleges, students may hit the maximum federal borrowing limits and have no choice but to look for private loans.
Q: Are there others who don’t benefit?
A: Borrowers already in default won’t qualify. The accelerated component of the income-based repayment plan only applies to borrowers who take out a loan in 2012 or later and who also took out a loan sometime between 2008 and 2012, according to the Education Department. To be eligible for the consolidated loan component, a borrower must have both a direct loan from the government and a loan from the Federal Family Education Loan Program.