Obama Student Loan Reform
This is noteworthy reform because it will change student loan repayment forever. And we’re excited to announce, there are some benefits for upper middle class (UMC) families.
Let’s look at what Obama signed.
The first major change is that private banks will no longer be handling federal government student loans. Loans will now be administered to students directly by the Department of Education.
For new loan borrowers as of July 1, 2014, they will be allowed to cap their monthly loan repayments to 10 percent of their discretionary income. Discretionary income is the money left after paying taxes and buying necessities. Right now the cap is 15 percent, very high for most borrowers. This is a GOOD change for UMC students because they will feel less of a monthly financial crunch after graduation.
Also, for 2014, loans will be forgiven after 20 years if the borrower makes timely monthly payments. The current forgiveness time period is 25 years. This can be good for UMC borrowers if they are in a bind and must extend out their loans; however, the interest will accrue to the point that they will pay thousands upon thousands of dollars more than originally borrowed. Also, keep in mind, a normal student loan period is around 10 years, so UMC borrowers most likely will not be affected by this change.
Now for the changes that will not affect or help the UMC:
It will be easier to qualify for federal PLUS loans for students. At WPC, we like to avoid loans as much as possible. But if you have to take out loans, Stafford loans are the best (with the lowest interest rate). PLUS loans have higher rates and families should only take out a PLUS loan if they absolutely need it.
The amount of the Pell Grant will increase. This does not affect the UMC at all – to qualify for a Pell Grant, you have to be in the lower income echelon.
Billions of dollars will be poured into historically poor schools. Usually, UMC students apply to heavily endowed private schools, so this won’t affect them either.
Since we like to end on a good note, let’s look at two new provisions of this act that will benefit some UMC families:
Funding will be increased to community colleges. WPC finds this very interesting, especially since we discuss the future of the UMC and community college. As we predict, more of you will be looking toward community college for the first two years of school. Take a look at these two articles: Community College, Stigma or Steal? and Community College Leads to Ivies.
Funding will be increased to minority schools. That would mean top-notch historically black colleges and universities, also called HBCUs. This is a great change for UMC students because this reform may increase students’ chances of receiving educational financial aid in the form of college grants and scholarships.
We had hoped for more reform on student loan consolidation interest rates and college loan consolidation in general, but maybe that’s next time around.
*Teachers & Nurses – Click on this article to see your benefits: Teachers, Nurses Rejoice!