Student loan repayment could be made easier

In an attempt to quell ever-growing worries about mounting student loan debt, the Obama administration renewed its push for financial aid reform this week by announcing new proposals to a program aimed at making loan repayment easier for recent graduates.

Many recent and soon-to-be college graduates are facing thousands of dollars in debt that entry-level salaries may not be enough to cover, if they can find employment in the nation's worst job market in decades. Nationally, about two-thirds of undergraduates who graduated in 2008 left school with an average of more than $23,000 in student loan debt, according to the Project on Student Debt — a nonprofit independent research and policy organization dedicated to analyzing trends and repercussions of student loans.

In his State of the Union address Wednesday night, President Barack Obama promised more affordable student loan programs. Earlier this week, Vice President Joe Biden announced that individuals struggling to pay thousands of dollars in student loan debt would be relieved by a new plan to strengthen the Income-Based Repayment program, which allows borrowers to repay loans at 10 percent of their income for 20 years, after which all remaining debt would be forgiven.

Although income-based repayment already exists, the administration's proposal would expand the number of people who are eligible for the program and allow those who are already qualified more benefits.

"Let's tell another 1 million students that when they graduate, they will be required to pay only 10 percent of their income on student loans, and all of their debt will be forgiven after 20 years — and forgiven after 10 years if they choose a career in public service," Obama said in his address. "In the United States of America, no one should go broke because they chose to go to college."

The original IBR Program was put into effect last July after Congress approved a 2007 bill aimed at making college more accessible for lower-income students. But financial aid experts said the planned expansion would stand to benefit middle- and higher-income people as well.

"Low-income students tend to borrow in higher numbers, but middle- and high-income students have to take out student loans, too," said Edie Irons, spokeswoman for the Institute for College Access & Success, of which the Project on Student Debt is an initiative. "The target group for this legislation is huge. All federal student borrowers stand to benefit from it."

IBR puts caps on loan repayment amounts based on a sliding scale of income and family size. For most of those eligible under the current program, loan payments will be less than 10 percent of their income, and all remaining debt will be forgiven after 25 years of consistent payments. The new proposal would make more people eligible for the program and shorten the amount of time needed to repay loans before the remaining amount is forgiven from 25 to 20 years.

"The administration has been very good in supporting student-friendly legislation," U.S. Student Association spokesman Jake Stillwell said.

Although most major banks and lenders have opposed other aspects of the Obama administration's push to reform financial aid, most lenders support this initiative.

When borrowers are forced to repay debt beyond their means, they can default on their loans, which only hurts banks and lenders in the long run.

"We don't expect any opposition on this program," Irons said.

But some remain skeptical of how much this program would benefit the average student.

"There's no such thing as a free lunch," said Sarah Bauder, the university's financial aid director. Bauder noted the majority of students at this university who take out loans do not qualify for other types of aid, including federally backed need-based grants awarded to low-income students.

Bauder said she has seen more students borrowing more money since the federal government raised the cap on federal borrowing, but noted more students were taking out unsubsidized loans, which require students to pay back the amount while still in school, because they had few other options. She conceded this legislation couldn't hurt, however.

Overall, most advocates for financial aid reform said this proposal was another step in the right direction from an administration that has positioned higher education affordability as a priority.

"Our core belief is that education is a right, and the government should do whatever it takes for us to get to a place where all students can afford an education," Stillwell said.

mlang@umdbk.com