College graduates struggling with student loan debt may soon have some relief, thanks to a pair of measures proposed by the Obama administration.
According to a story by CNNMoney, starting this January a new White House measure will encourage graduates with two or more different types of student loans to consolidate these loans and receive a lower interest rate. The second measure would give an earlier start to a new loan repayment program that is based on income.
Under this income-based program, low-income graduates are only required to spend 15 percent of their monthly discretionary income on paying off their loans. After 25 years, if graduates haven’t paid off their loans, the remainder of their student debt is forgiven.
Congress recently passed a law that would go into effect in 2014 that would drop the monthly student-loan payment under this program to 10 percent of low-income students’ discretionary income. This measure would also forgive low-income students’ remaining debt after just 20 years.
The Obama administration’s new measure puts these better terms on a faster track, putting them into effect in 2012 instead of in 2014.
There’s some question, though, about whether these changes will have much impact on the financial fates of college graduates. According to the Institute for College Access & Success, the average student loan debt for the graduating class of 2009 at four-year nonprofit colleges stood at a whopping $24,000.
That’s a lot of debt for graduates to leave school with, especially during a time in which the national unemployment rate remains above 9 percent. For many graduates, this much debt could lead to an eventual bankruptcy filing. But even then, student debt is generally not allowed to be discharged.
Whether the Obama administration’s program is the answer is yet to be seen, but one thing is certain: If we don’t want to start a new wave of young people filing for bankruptcy protection, something does have to be done about the crushing loan debt that so many graduates bring with them after leaving their studies.
CNN Money: “Obama to offer help for students buried in debt,” Jennifer Liberto, Oct. 25, 2011