Obama Student Loan Reform


Under the shadow of the Healthcare Reform Bill, President Obama signed the Education Reconciliation Act of 2010.

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!

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© White Picket College, 2010 – College Funding for the Upper Middle Class

4 Responses to “Obama Student Loan Reform”

  1. shenee carter says:

    I owe 60,000 .. i took 30 classes they do not transfer and when i returned to school after 2 years .. i was told to start over .. any advice

  2. admin says:

    Shenee, I emailed you privately to discuss this situation. Thanks for commenting!

  3. tom samples says:

    College students today are in deep trouble, and the administration is too blind or are ignorant of what is going on with this generation at the grass roots level. This economy is not going to budge one inch to the positive. Most of these students coming out over the next couple of years have no job prospects, are deeply in debt, and will not become consumers. Most will just add to the desecration of the American economy. The only way for the economy to grow is for our citizens to consume products, and these kids will not have any money to buy homes, cars, televisions, etc. Add this generation with no spending power and the excessive amount of boomers going into retirement that will no longer make major purposes, and we are heading toward a much worsening situation than we find ourselves in now. Students are paying loans with credit cards that deferrals have elasped on right now. There better be some reform and quick, and the sad part is that most of Obama’s reform does not even take place until 2014, so I guess that is to hell with the present day students. To make it even worse, most schools raised tuition another 2k to 3k this year, and I am wondering how and why this has occurred. If America is waiting for recovery, wait until these classes of students graduate and hit the streets in May. If the democrats and republicans want a quick fix in elections, they would do well to emphasize education reform because they will capture whole generations of young people from 18 to 26 and the parents that support them in trying to better their lives.

  4. admin says:

    Tom, you make some valid points. Esp. about the consumer spending from a generation that has no money to spend.

    Actually, it’s interesting because two very bright post-graduates I work with are struggling to find jobs. One works two jobs, and one of those jobs is at a paid internship. Both post-graduates graduated from extremely prestigious schools and have resumes to be envious of … yet they cannot find full-time, decent paying jobs.

    I think you’ve inspired my next blog post.

    Thank you for commenting, Tom!

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