The first thing you should know about my student loan debt is that there is quite a lot of it. Recent reports show that America now has more than 1 trillion dollars out in student loans, and that has a lot to do with people like me. I am over $80,000 in debt, and it’s all student loans.
Needless to say, when the headlines came out Wednesday morning about Obama’s new plan to help graduates with their student loans, I sat up straight and paid attention. At the end of each article, though, I didn’t know how to feel. What exactly was the Obama policy? What would it do for me (and, presumably, you)?
I decided to find out.
Here are the takeaways from the articles (sources: NYTimes, NPR, Seattle times, TNT, so forth):
After reading these over I was wary. My first question was, How do I know if I am even eligible for the “Pay as You Earn Program?” The official federal student aid website says:
“Who is eligible for IBR?
You may enter IBR if your federal student loan debt is high relative to your income and family size. While your loan servicer will perform the calculation to determine your eligibility, you can use the U.S. Department of Education’s IBR calculator to estimate whether you would likely qualify for the IBR plan. The calculator looks at your income, family size, and state of residence to calculate your IBR monthly payment amount. If that amount is lower than the monthly payment you would be required to pay on your eligible loans under a 10-year standard repayment plan, based on the greater of the amount you owed on your loans when they initially entered repayment or the amount you owe at the time you request IBR, then you are eligible to repay your loans under IBR.”
I used the IBR Calculator, and by roughly estimating my yearly income at $30,000 (Although it may well be higher depending on how my employment situation works out) and my eligible loans at $30,000 (I really didn’t want to look up the exact amount, but this sounds right). Naturally, this would go up considerably if/when my income jumps to 35k a year, but would also go down considerably if I was un or under employed and simply incapable of paying the loans at the initial amount. For the amounts above, the calculator told me:
“According to the information you provided, it appears that you are eligible for the Income-Based Repayment plan with a monthly payment amount of approximately $170.”
Sweet! For my federal loans, I am currently paying $40/month to my university, $90/month to the federal government (or is that Nelnet? I can’t tell who owns this one now), and $190/month to Sallie Mae. Here they’ll tell me that under the current system I could cut it down!
Let’s back up a moment and point out why I don’t want to use this program. My current payment levels are based on me paying everything off in 10 years (other than, you know, having it all drag on for 20+). I would like to say right now for the record that I am not greatly interested paying less each month. Unless it was to convert the extra $150/month to my evil private Sallie Mae loan payments. But besides that, can I even be eligible for this system if my loans go through three different companies/legal entities? This Q&A website didn’t really tell me. I suppose I would have to talk to Sallie Mae/federal gov/my university individually. Anyone who has had to call through all their loan companies knows what a hassle THAT is. (Evil, evil Sallie Mae…)
What they did have to say:
“How do borrowers apply for IBR?
For more information about and to apply for IBR, contact the servicer(s) of your student loans. If you are not sure who your loan servicer is or would like more information about your loans, you can look it up on www.nslds.ed.gov. To see a list of and contact information for Federal Student Aid servicers for the Direct Loan Program and for FFEL Program Loans purchased by the U.S. Department of Education, go to the Loan Servicer page.
This fact sheet provides only a summary of the basic requirements of the Income-Based Repayment Plan. For more detailed information, review the Department’s IBR Questions and Answers document.”
So that gives you some info on the first part of Obama’s plan. Now onto the second: how do I know if I have the type of loans I can consolidate together in order to get a lower interest rate/make my life easier?
On the Federal Family Education Loan Program website you can see that these sorts of loans are: Stafford (subsidized and not), parent plus, and consolidation. I assume this consolidation loan is what the government is talking about.
I know there are a few sort of federal loans handed out based on financial need. My understanding of my college trials with financial aid was that Stafford subsidized loans are like gold. Shinny, shinny, interest-paid-by-someone-else gold. I cherish mine. It came at the high cost of my parents leaving their job in my home state (not for this purpose, just coincedentally) and moving across the country to take a position that paid half as much as their former position, essentially knocking them from over 100k a year to about 60k, while two of my other sisters were in college (therefore telling the government that my parents’ resources were exhausted). The governemtn didn’t believe I was telling the truth about my parents’ new income (it was before the recession) and made us fax over tax documents before they pushed everything through. Afterewards, the government decided that this meant they could not afford to pay for me, and cover my interest for awhile.
I’m assuming that FFEL loans are for people who really need them, not just complementary loans for people whose lives would be much easier with them. So by limiting eligibility to folks with FFEL loans, instead of just federal loans, the government is targeting folks who (at least during school) showed greater financial need. The other great thing? This may really help out parents of students! Anyone ever take out a parent plus loan? Maybe this will assist them.
I am a little uncertain about what the actually policy will do for me. It says it will lower interest rates by as much as .5%, but is it assuming that the loans you’re combining are of equal interest rates? One of my federal loans has like a 1.8% interest rate (no clue why), while others have 6.8%. It is unclear about how this will all be brought together. In any case, consolidating as much as 30k (wait, I only have to deal with one person instead of three?), and lowering the interest rate by any amount, would be much appreciated in my life.
What does this all mean?
The president is trying to help those who have student loans and are in the worst possible situation right now, as best he can, within the confines of the federal government. There’s no way he can touch private student loans (the scourge of my existence).
The first policy he is presenting is for those making very little money, or in very high amounts of federal loan debt, who are un or under employed. Sure, there is the horrible fact that they’re just pushing off their loans for ever and ever (or the first half of their adult life), but it will allow some people to breathe a little easier in the coming years where they have plenty of struggles. The second part targets students he knew were struggling while in college, and give them some long term relief, and in the end, cost them less money.
While I really, really wish the government could/would address the long term problem of increasing tuition for fewer services in colleges across the country, I know that in this political climate that’s a measly pipe dream. But the fact that Obama is listening to millions of students (and parents) calling out for help, and at least getting the ball rolling, is much appreciated.