The Obama administration has a new policy pertaining to student loans. A new executive order drastically changes how students must repay their loans, and caps payments at a percentage of income. Like most things that seem too good to be true, this one is, and it disadvantages those who deserve loan relief the most.
Obama’s new policy is great until you think about the implications. Those in the most highly demanded jobs will have higher monthly payments on their student loans than those with the lowest demand. That is because these degrees pay the most out of college.
The plan caps loan payments at 10 percent of income opposed to the current 15 percent cap. This plan does not consider expenses or working conditions. It also has income limits.
Those making more than $45,000 a year with an average debt burden would likely see little from the program except a pat on the back for their degree. Those who work a job during college, and thus have lower loans, will likely not get as much of a benefit either.
That is not fair.
It gets worse. The rules also make it easier for students to defer payments on their loans. This idea, seemingly responsible, does not take into account the lack of knowledge about compound interest.
Under the rules, interest would still accumulate, ensuring that students in the worst environments will eventually have to pay more.
Most students know little about what that means for the time it takes to repay their loans. Many professionals are still paying off student loans years later. If the “loan counseling” offered by the government is anything like its current setup – a series of screens to be clicked through – little will be learned by students during the process.
Teens and young adults often get saddled by credit card debt for the same reasons – a lack of knowledge about repayment obligations. The government is enabling students to make poor choices by offering a deferral program. Those with the most loans will continue to go underwater.
The administration’s plan also fails to consider the cost of living. A graduate making $55,000 in New York City, and thus likely ineligible for loan capping, is going to be worse off than one making $30,000 in the Tri-Cities. The student making $55,000 will have to pay more on their loans, but have less income after food and shelter than the student making less money.
Considering that many jobs with higher starting salaries are in major cities, this becomes a huge issue. After reading between the lines, Obama's loan program only helps those with exceptional amounts of debt who cannot find jobs. The average student receives little.
The system does not work.
With these problems, it is clear the administration cares less about student well-being and more about voting.
As 2012 rapidly approaches, Americans have to be aware of the pittances that the administration will publicize in order to get votes. During the next year, students will receive other token forms of appreciation in return for votes. These handouts will be touted and publicized heavily, yet do little.
Out of this loan program, the one thing that might really make any impact is the loan consolidation program. Daniel Indiviglio from The Atlantic shows that if the Obama administration is correct that its consolidation program will lower interest rates by half a percent, the average student will save between $4.50 and $7.75 per month.
That is the deal. Of Obama’s much ballyhooed package, you may get up to $93 per year in savings in exchange for not having a job after graduation due to failed policies.
I say pass.