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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Food stamp soda ban can save 141,000 children from obesity

— Banning soda and other sugary drinks from food stamps would lead to significant drops in obesity and diabetes rates among the poor, according to a new study.

It would prevent at least 141,000 kids from getting fat and another 240,000 adults from developing Type 2 diabetes, the kind that usually stems from obesity, according to Stanford University medical researchers in a study published in the June issue of the academic journal Health Affairs.

“It’s as big an impact as I’ve seen,” said lead researcher Sanjay Basu, an assistant professor of medicine at the Stanford Prevention Research Center.

Basu started the study to explore criticism that the federal food stamp program, officially called Supplemental Nutritional Assistance Program (SNAP), subsidizes the purchase of sugary drinks that offer no nutritional value.

Over the years, several studies have shown that poor families on food stamps tend to have much higher rates of obesity and diabetes than the rest of the population.

“There are complaints that (taxpayers) are getting charged twice, once for the SNAP program and then again for the Medicaid and Medicare costs when people get diseases,” Basu said.

Food stamps is big business for the beverage industry. A separate 2012 study found more than $2 billion in food stamps each year goes to sales of sugary drinks, according to Yale University researchers. That amounted to 58% of beverages purchased on food stamps.

Overall, obesity rates among food stamps users would go down by 2.4% over 10 years, according to the study. That might not seem like much for the 46.1 million people who depend on the safety-net program.

However, in the world of health policy, that’s a lot, said Basu.

Christopher Gindlesperger, spokesman for the American Beverage Association said “obesity is a complex health condition.” He called the obesity reduction rates in the study “insignificant.”

“Targeting struggling families who rely on SNAP’s vital safety net will not make America healthier or reduce government spending,” Gindlesperger said.

Efforts to ban sugary drinks from food stamps haven’t made much progress. In 2011, New York City’s former Mayor Michael Bloomberg tried to get permission to ban food stamp purchases of soda in that city. The U.S. Department of Agriculture told him no, calling the effort “too large and complex.”

Last year, Bloomberg and 17 other mayors wrote to Congress last year, asking them to ban sugary drinks from food stamps.

Last year, Rep. Phil Roe, a Tennessee Republican and doctor, proposed new limits on food stamps that would ban their use for junk food but that measure hasn’t been considered by a committee.


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Congress OKs cheaper student loans

— The House on Wednesday approved a bipartisan that ensures lower interest rates on loans for students heading to college this fall.

Members of the House voted 392 to 31 to lower rates for undergraduates taking out government loans this school year to 3.86 percent — cheaper than the 6.8 percent interest rate that kicked in on July 1. The new rates would be retroactive and apply to loans taken out after July 1.

The bill, which passed the Senate last week, will now go to the President Obama’s desk to be signed into law.

It has provisions for rates to go higher in coming years.

As House members debated the bill, many Republicans took credit for the deal. They noted that the Senate version wasn’t much different from their own student loan bill, which linked rates to the bond markets.

“My colleagues and I have been fighting for months for a long-term market-based solution that will serve students and taxpayers, and the legislation before us today will do just that,” said Minnesota Republican John Kline, who runs the House education panel.

The new rule doesn’t apply to loans that students get from private lenders. It only affects Stafford loans, which are made by the U.S. government to help finance a college education.

On July 1, the interest rate on subsidized Stafford loans doubled from 3.4 percent to 6.8 percent, affecting 7.4 million students. The subsidized loans are based on financial need and account for about 26 percent of all federal student loans, according to the Congressional Budget Office.

Unsubsidized loans and graduate loans were already paying 6.8 percent interest rates.

The latest bill helps all students, with the basic principle being that it ties student loan rates to the bond markets.

This fall, undergraduate students will pay an interest rate of 3.86 percent on their loans. It is comprised of the yield on the 10-year U.S. Treasury note on June 1, plus an additional 2.05 percent. Graduate students will have to pay 5.4 percent on loans this fall, or 3.6 percent over the 10-year Treasury.

If rates on Treasury notes rise, so would student loan rates under the new deal.

However, the bill makes provisions to protect students if bond yields were to spike. Loans for undergraduates will be capped at 8.25 percent and for graduates at 9.5 percent.

Over 10 years, the interest that government collects on student loans is expected to raise $715 million. It will go toward reducing deficits.

The Obama administration has been pushing for the deal, even though left-leaning Democrats opposed the bill for hiking rates in coming years.

Student loan debt has skyrocketed in recent years, as have delinquencies, making it a pressing political and financial issue for millions of Americans. Many students graduate from college deep in debt and without jobs. It is second only to mortgages as the largest debt that consumers carry. In 2011, students on average owed nearly $27,000 in loans.

— CNN’s Ted Barrett and Deirdre Walsh contributed to this piece.


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