The White House has announced a new plan to help students and recent graduates drowning in debt, but how much does it really help?
Amidst growing support for the Occupy Wall Street movement throughout the country, President Barack Obama has decided to fast track a proposal to ease the burden on those buried in student loan debt. According to the president’s new plan, people with direct government student loans and government-backed private loans will be able to consolidate the two into one government loan, allowing borrowers a lower government rate and a .5 percent interest rate reduction. The plan will also lower the cap on maximum repayment of loans based on discretionary income from 15 down to 10 percent and forgive remaining debt after 20 years instead of 25.
Sounds wonderful, right? Finally the government is starting to do something about the student loan crisis before the bubble breaks. Occupy Wall Street is finally starting to accomplish a concrete goal. Lets pat each other on the back and pop the bubbly. Not so fast my friends—there is a catch.
Obama’s plan is merely a slight revision on an existing plan. It may sound significant that borrowers will only have to allocate 10 percent of their discretionary income towards student loan debt, but once you look at the small segment of Americans taking advantage of the current plan it doesn’t sound as noteworthy. Since 2007 the federal student loan repayments have been capped at 15 percent, however only 450,000 of the nation’s 36 million borrowers take advantage of the income-based repayment plan. Will lowering it 5 percent more really make that big a difference?
According to the Wall Street Journal, of the 36 million Americans with student loans, only 5.8 million are estimated to be able to take advantage of the loan consolidation. The White House estimates that 1.6 million Americans will take advantage of the new plan — merely 4.4 percent of the student loan burdened population.
Obama’s new plan can certainly help, and it is a step in the right direction, but even if those eligible take advantage the savings are pretty modest. It doesn’t come remotely close to the sweeping changes being asked for in the streets and the Op-Ed pages of the New York Times — although most student loan demands have been unrealistic.
The obvious reason for President Obama announcing this plan is to sway the young voters back into his corner for the 2012 election. The massive support of younger voters was the backbone for Obama’s 2008 presidential campaign, and their loyalty has waned over the years while their frustrations with the Administration have grown daily. This student loan plan was originally scheduled to go into effect in 2014, but Obama moved it up to 2012 in an attempt to win back the jaded younger voters who got him elected in the first place.
I don’t think anyone truly expects President Obama to use his executive power to erase student loan debt entirely, but he shouldn’t make this new plan sound groundbreaking or more significant than it really is.