Few benefit from Obama’s student loan program


— Amid great fanfare, President Obama on Monday announced plans to use his executive pen to help more graduates tackle student loan debt.

However, the number of students that will benefit is like a drop in the bucket, according to student loan experts.

“We’re probably not going to have many new borrowers saying: I’m going to qualify for this, I should look into it,” said Mark Kantrowitz, publisher of Edvisors Network, an educational resource for students.

What the President announced wasn’t a new program; it’s an expansion of cheaper terms of an existing loan repayment program. And it won’t become available until December 2015.

Only 1.8 million borrowers nationwide have enrolled in similar programs that offer cheaper student loan repayments. That compares to 40 million with student loan debt nationwide, according to federal data.

Part of the problem is that few people know about these programs, even though this is the second time in three years that President Obama has used his bully pulpit to promote them.

Rather than a broad base, the programs are also designed to only help the poorest borrowers living on the edge — those who generally face more student loan debt than income, with limited employment prospects.

Kantrowitz said that rather than a better loan repayment strategy, it is a “safety net” aimed at convincing borrowers to avoid defaulting on their loans. A default can lead the federal government to garnish 15% of a person’s wages.

“No more than 10% of student loan borrowers qualify for the programs,” Kantrowitz said.

Under Obama’s announcement, people who took out student loans before Oct. 2007 will soon be able to qualify for a program that caps repayments at 10% of income. Currently, their payments are capped at 15% of income.

Nearly 5 million borrowers would qualify under this expansion.

“Let’s be honest, families at the top, they can easily save more than enough money to pay for school out of pocket. Families at the bottom face a lot of obstacles,” Obama said on Monday.

Those who took out loans starting in Oct. 2007 may already qualify for the 10% cap.

Under the expanded program, struggling graduates also catch another break — monthly payments are based on income that is at least 150% above the poverty line.

In 2014, the poverty threshold for a single person is $11,670. So, a graduate living alone would make payments capped at 10% of any dollars made above $17,505.

The programs can’t help borrowers with private loans, which comprise about 15% of all student loans, according to the Consumer Financial Protection Bureau. They also can’t help borrowers who have already defaulted on student loans.

Currently, new borrowers of student loans can enroll in the repayment plan called Pay as You Earn, which also forgives loans after 20 years, rather than the earlier limit of 25 years.

One big question is how the administration plans to pay for the expansion. In past budgets, the administration has suggested it would cost several billion dollars to expand the program.

U.S. Secretary of Education Arne Duncan said on Monday “we actually don’t know the cost yet.”


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