President Obama unveils new “pay as you earn” plan to ease student debt
As republican debates heat up and primaries loom, President Obama is taking steps to ease financial burden on students while also enhancing his pending re-electioin campaign
A day after Obama told Jay Leno that he wouldn’t pay attention to the republican candidates until the primaries were over and a single candidate had emerged, Obama announced a new “pay as you earn” student loan plan to thousands of student University of Colorado – Denver.
The expedition of an already-established Congressional debt-repayment program is not the only move Obama’s administration is making. The administration clearly frustrated by the widening divide between Congressional Republicans and Obama’s democrats that has forced him into a “we can’t wait” philosophy.
“The announcement is part of a series of executive actions to put Americans back to work and strengthen the economy because we can’t wait for Congressional Republicans to act,” a White House statement said.
The plan announced Wednesday caps student loan payments at 10 percent of discretionary income and forgives debt after 20 years, compared to the previous program, in which the cap stood at 15 percent and debt forgiveness was granted after 25 years.
The announcement to ease the financial burden of students buried under thousands of dollars of debt comes just one week after the USA Today reported that Americans were borrowing money at a greater rate than ever before, and total loans outstanding are surpassing $1 trillion for the first time.
From USA Today:
The amount of student loans taken out last year crossed the $100 billion mark for the first time and total loans outstanding will exceed $1 trillion for the first time this year. Americans now owe more on student loans than on credit cards, reports the Federal Reserve Bank of New York, the U.S. Department of Education and private sources.
After the USA Today reported that young people would start adult life deeper in debt, which could bring the economy down once again in the future, Obama announced his plan to alleviate that debt.
In an ABC News story out of Tampa, Fla., University of South Florida’s Financial Aid Director Billie Jo Hamilton said she believes the “pay as you earn” plan would help certain students because it is based on income. She added that some new graduates who enter the workforce at a lower salary should also benefit from the plan.
“It may also go a long way to helping students that perhaps would default because they couldn’t make the ten-year repayment payment amount,” said Hamilton.
Like most political actions, the plan has been met with glowing support as well as harsh criticism. Critics of the plan say it is expected to mostly benefit the unemployed or low-paid Americans.
Other critics see this as an attempt by Obama to once again reach to to the young voters who helped put him in office. Those 18- and 19-year-olds’ graduation dates are near and a future with mounting student debt looms.
Speaking to the Denver crowd Wednesday, Obama empathized with students in debt, because it was a situation both he and his wife Michelle dealt with first hand. Although he fails to mention the $120,000 combined debt was after both had attended law school.
“I know you’re hearing stories from friends and classmates and siblings who are struggling to find work, and you’re wondering what’s in store for your future. And I know that can be scary,” Pres. Obama at the Colorado University – Denver. “This is something Michelle and I know about firsthand. I’ve been in your shoes.”
It’s clear that Obama wants to make it easier for students to attend college and then pay for it down the road while staying above water financially. And while students are borrowing money at extremely high rates, it is because of rising costs of government-funded higher education that they are forced to do so.
CBS News reports that the increase in average tuition and fees at public four-year institutions has outpaced increases at private nonprofit institutions for the fifth year in a row. The increases exceed inflation rates, the study indicates, and at public and community colleges, costs rose more than eight percent for the 2011 academic year.
Government-funded universities are increasing tuition to factor in rising inflation and a slumping economy. Therefore students are borrowing more money from the Federal Government to pay the state governments’ university tuition.
If, then, after 20 years, a student is not able to completely pay off the debt borrowed from the Federal Government, then that debt is absolved – in essence it disappears – and the Federal Government is left to cover the lost expenses.
Why not just slash tuition at government-funded universities and then increase the financial support for those universities. Instead, funding for higher education is routinely cut to ease budget crises and thus tuition increases, as does debt. It’s a vicious cycle.
Lindsey Burke at the conservative Heritage Foundation’s Foundry blog wrote that the costs of forgiving student loans would be unfairly shouldered by those who pay taxes but never had the chance to go to college, according to a post on the political blog Politico.
“It is unfair to forgive student loans on the backs of waitresses and construction workers and the nearly three-quarters of Americans who didn’t graduate college. Increases in federal subsidies or student loan bailouts shift the burden of paying for college from the student—the person directly benefiting from college—to the millions of Americans who did not graduate from college,” wrote Burke.
One year from now, the United States will be weeks away from re-electing President Obama, or moving on and inaugurating the new, 45th President of the United States. At the same time, the new “pay as you earn” plan will go into effect for the first time – two years earlier than originally agreed upon.
It is clear that while the announcement was just made Wednesday, the debate about whether this is good or bad for our country will rage on, well into the next year.
Photos courtesy AN HONORABLE GERMAN, Languagefan1, and HistoryByDay via Flickr.