New Benefits Make Student Loan Repayment More Manageable and Affordable for Millions

Today new benefits go into effect that will make monthly student loan payments more manageable and affordable for millions of students and borrowers struggling to stay afloat in this tough economic climate.

These benefits were enacted as part of the College Cost Reduction and Access Act, a law I sponsored in 2007 that made historic investments to help more Americans earn a college degree. With the economy against this year's college graduates, this relief couldn't come at a better time.

First, a new Income-Based Repayment program takes effect that allows borrowers to cap their monthly loan payments at just 15 percent of their income, based on their family size. Any current or future borrower whose student loan payment exceeds 15 percent of their discretionary income is eligible. After 25 years in the program, borrowers' remaining student loan debts will be completely forgiven.

Take for example, a recent graduate with $30,000 in federal student loans and a starting salary of $25,000. Under an Income-Based Repayment plan, this borrower's monthly loan payment would be reduced to $110 a month -- a third of the $345 they would be required to pay under a standard 10-year repayment plan.

Second, the interest rate on subsidized -- or need-based -- federal student loans also drops today, from 6 percent to 5.6 percent. Anyone taking a loan after today will benefit, meaning that for millions of students and families sitting down to plan for this fall's expenses, they'll have a lower, more affordable interest rate locked in for the life of their loan. This is the second annual cut in these interest rates; they will continue to decrease until they reach 3.4 percent in 2011.

Third, our nation's neediest students will be able to receive a Pell Grant scholarship of $5,350 this fall that will cover a much larger share of their college expenses than year's past, a $600 increase above last year's award. A generation ago the Pell Grant covered about half of a student's tuition expenses; thirty years later, the purchasing power of the scholarship has dramatically declined.

Finally, for the surge of Americans interested in public service, a recently-established program exists to make it easier for workers with hefty debt loans to go into critically-needed, but typically lower-paying fields. Under this public service loan forgiveness program, workers who work in public sector fields -- like teaching, nursing, public interest law, non-profit work, and more -- will see their federal student loans completely forgiven after 10 years of service and loan repayments.

This good news is long overdue for students, their families -- and especially for this year's graduates.

In previous years, students could borrow for college with the assurance that a steady salary awaited them upon graduation. Unfortunately, in this economy, that same cushion doesn't exist.

At 2.3 million, the class of 2009 is the largest class to graduate college to date -- into the toughest job market for young workers in 25 years. In May, unemployment among 20-24 year olds topped 15 percent -- up from 9 percent a year ago. According to the National Association of Colleges and Employers, just 20 percent of 2009 graduates who applied for a job have one -- that's a thirty percent decrease from two years ago.

These graduates are entering this economy with plenty of financial baggage already in tow. The typical student now borrows about $22,000 in federal and private student loans to pay for college. Many borrowers already spend high percentages of their paychecks making student loan payments, especially in expensive cities across the country, where juggling student loan payments with rent, utility bills and other basic expenses can be daunting.

These new benefits will give borrowers a much-needed lifeboat.

The Income Based Repayment and loan forgiveness programs will alleviate some of the stress working families feel when repaying their loans and will empower Americans to go into critical public service jobs -- allowing them to keep their primary focus on their interests, not their outstanding loan balances.

In this economy, every little bit of help counts. For the class of 2009, these benefits may be just the graduation gift they've been waiting for.

(Cross-posted at the EdLabor Journal.)

Follow Rep. George Miller on Twitter: www.twitter.com/askgeorge

Comments

[schatsie]

WOW, what a lot of interesting comments... We were all screwed when the Repugs removed all income tax reductions for interest except for homes... We need that back, at this time any interest payments should be reported to the IRS and the payers and we get a 40% tax credit.... We need it in these times of trouble..

Look around you, and tell me what the FREE MARKET MAFIA has done for EDUCATION and WELFARE....NOTHING TO KEEP THE RATES down, NOTHING AT ALL. And make college expenses deductible as 40% credits against current parental earnings or future earnings to the extent of 50 grand.... and same with health insurance, give us the same tax credits that the employers are getting...

[roseau]

Wow! Do I get to go back and redo my life?! Because I'm 40 and we paid off our last loan LAST YEAR. My student loan payments totaled over 30% of my pre-tax income when I graduated in 1990. My husband and I spent our 20's and 30's chipping away at our student loans, while also trying to keep ourselves covered by health insurance. This kind of change to the repayment plan would have meant we could have bought a house in the 90's, rather than in 2004. So this is great news for millennials and younger, but once again it's too little too late for the ever-so-screwed generation X.

[DesertDogAlpha]

Hey George - Why is it that you and others in Congress seem intent in making it easier and easier for college students to pay bills for college costs that have gone up faster than almost any other cost in American life over the past 30-40 years? Why is it that the cost of a university education has gone up faster than that of bread, gasoline, electricity, a car, etc. etc.? What do you plan to do to help drive the cost of going to college DOWN?, or at least get it so that it doesn't go up faster than the general rate of inflation? All you are doing is subsidizing cost irresponsibility by universities. We could start by, say, having professors teach 21 hours per week instead of 6 or 9 as many currently do. What do you think?

[dmyron]

Student loans = latter-day indentured servitude. Please America, rethink education as industry.

[KillTheMessenger]

Yawn. More civilized nations grant higher education for their students FOR FREE.

Why? Because there is no better guarantee for a nation to be prosperous than to have the most educated people on the face of this planet. And those you really don't get by weighing your young people down with "loans".

Who do you work for, Congressman? The loan organizations who make endless money on students or your country?

[l3randon]

If they insist on continuing to spend money we don't have, they should at the very least invest it directly into colleges. If you want to lower the price of higher education, increase the actual supply of education instead of trying to subvert basic laws of economics. Build new schools, hire new professors, expand existing schools, give the higher education system more capacity, and schools will actually have to lower their tuition rates rather than raising them as the government throws more money into increasing demand without increasing supply. Unfortunately, those of us who have already gotten an education chose to pay these inflated prices, or put them off with loans, but we should've known that even government is subject to the laws of economics. We got the government we deserved, because we failed to think about these basic principles and failed to vote out the frauds who have continually escalated these types of worthless programs. To help future generations, we need actual change instead of letting people like Miller continue to throw more and more money into a failed system. As for our debts, and I have about 60 grand on my own, we made our beds, and we need to stop trying to weasel out of debts we accrued voluntarily. We can't change the past no matter how much money we throw at it, but we can stop increasing the burden on generations who are not even born yet. We have to demand better of our government.

[NedroidPrime]

Doesn't matter how much money the government gives them. Colleges and Universities are profit driven anymore. Hence the new books every year, the radical increases in tuition and fees, etc.

I didnt' have a choice but to go for higher education. Before the tech crash in 99/00, I was doing quite well with only a diploma. However, once the tech sector got more competitive, a degree is required for almost any position. The only way past this is if you had years of experience to compensate (which I didn't have, just out of HS). So it became a catch 22 of needing experience, but needing a degree to get said experience.

[Sepulchre]

Another thing that needs to change is that I don't think that private student loan companies should be except (like Federal Student Loans) during bankruptcy proceedings. They are private companies and not the government, I am still wondering how they managed to get in on that. No other private debt is excluded, except this one. It is suspicious.

[The Albany Kid]

If only Ronnie and Nancy had spent less time time telling us Gen X'ers to "Just Say No" to d r u g s and more time telling us to "Just Say No" to debt!

[lonroyd]

I have to say Rep. George Miller, if you really want a big pat on the back you should have included the Private Loans that students require along side the Federal loans, so you really only addressed have the problem.

Since I have 90K in student loans, 45k in Federal loans and 45k in private loans your so called repayment plan doesn't save me a penny and I am guessing I am not alone here - but thanks for trying.

[liberty68]

For all the so-called benefits of consolidation, the big problem is how the interest is allowed to accumulate. When I consolidated my son's loan with Sallie Mae under the federal consolidation act, the loan was effectively converted into a huge Sallie Mae Credit Card debt. For example, on a normal loan you have a given due date after which a late fee is assessed. Not so with Sallie Mae. Under federal consolidation with Sallie Mae, if you're 3 days late for example, interest in assessed per day, so in my case at $7 p/d, that's $21 that Sallie Mae is allowed to take up front and put into their coffers and the principle is not reduced by that $21. Therefore, in such a scenario one has to pay interest on that $21 for the 25 year life of the loan. If a borrower is only 2 days late just 3 times in a given year, that's 7% interest on $63 for 25 years. So you can see how difficult it would be to pay off the loan because interest is computed in the same way it is on credit cards rather than the way it is on a regular loan. When I wrote to Sen Kennedy about this during his student aid hearings, Sallie Mae mysteriously converted from a quasi public entity to a private corporation. Something smells here.

[NedroidPrime]

With all due respect Rep. Miller, this honestly seems to be a case of talking the talk, but not walking the walk.

Yes, it is great to limit repayment amounts based on annual income. However, the 25 year burden is a little too much. The idea should be helping people to get out from under these loans entirely.

I was quite excited about the interest rate drop, but as I just graduated (this past month), I get no benefit from it and am stuck at 6%. 3.6% is more reasonable, but I am unable to get that rate since my loans already exist. Additionally, that rate doesn't come into effect until 2011, which is too much time for a phase in.

The public service option is a good idea, but the requirement that you essentially become an indentured servant for 10 years in addition to making payments that still hurt when you make a minimal amount makes it quite a burden. If the economy picks up soon, then it will be a lost provision.

One question though, since the payments are limited based on your annual income, does a person get additional credit for overpayments?

[yakmeat]

Nedroid-

I feel your pain. I graduated in 1995 (yes you read that right) and am still struggling with student loan payments on loans with an interest rate fixed at 8%. I went to a state university, in my home state, and to this day I still owe about $17,000. When the refinance boom hit real estate, I was asking why someone with an 8% mortgage on a $300,000 home could refinance to 6%, but someone with a much smaller student loan could not. Answers never came, and the closest I could get was that a home can be repossesse­d/foreclos­ed upon, but an education can't be sucked out of someone's head.

If Rep. Miller really wanted to have an impact here, this legislation would allow ALL borrowers to take advantage of the deals that today's graduates can. And if we're going to give credits for those working in non-profit land, that should be retroactive too. That would make a huge difference for me, as I worked for a museum for 6 years until they laid me off.

Helping the 2.3 million graduates of 2009 is great, but don't forget about those of 2008, 2007, 2006... etc.

For too many, college has not been the sure ticket to financial security.

[NedroidPrime]

No kidding!

This legislation doesn't even help the grads of 2009 even, since they already have all of their loans. Heck, it doesn't even help the grads of 2010, 2011, 2012 (except marginally)! It really won't have much of an effect until 2013 at least, which is plain sad.

Sorry Rep. Miller, but this new law falls well short of what we were told about it a year or two ago. I got excited and pointed to the new 3.5% as an example of the good things Dems were doing. Now that I have the details, all I can say is that you are lucky you aren't in my district.

But thanks for catering to the finance industry, and leaving us students in the cold...