2/14/2014 4:30 PM ET|
Changing the student debt game
Two little-known programs in the works could offer much-needed relief paying down student loan debt.
With college graduates each owing an estimated average of $26,000, the quest for affordable education rages on. But while tuitions get higher and interest on student loans pile up, there is help out there that many don’t know about -- and there are new initiatives in the pipeline trying to slow the surge in student debt that has left Americans owing more than $900 billion collectively.
“There are some really great programs out there to help students who can’t afford their monthly student loans,” said lawyer and student loan expert Heather Jarvis. “But [these programs] are somewhat limited in their effect because they are overly complicated and student loan borrowers find it difficult to navigate the system.”
The programs Jarvis is referring to are Pay As You Earn (PAYE) and Income-Based Repayment (IBR). Aside from the more well-known loan-forgiveness programs that are available mostly to teachers, government employees, volunteers and others with service-based jobs, PAYE and IBR are both income-based and designed to help anyone without a lot of money pay down their student debt by capping monthly payments to make them more affordable.
In both repayment plans, which can be hard to decode, the government looks at a person’s debt-to-income ratio, and if what is owed is high in relation to what is earned, the government may assist in payments. Pay As You Earn, which is available only to new borrowers who took out federal direct loans caps monthly loan payments for former students at 10 percent of their discretionary income for 20 years. If any debt remains after that time period, it is forgiven. Income-Based Repayment is easier to qualify for, said Jarvis, but borrowers pay 15 percent of their discretionary income for a 25-year period.
Fewer than 7 percent of federal direct loan borrowers who are repaying their loans took advantage of the plans as of June 30, according to the Federal Student Aid website.
In a memorandum in June 2012, President Obama acknowledged the need to streamline the process and ensure that people know about these programs.
“Too few borrowers are aware of the options available to them to help manage their student loan debt,” said Obama.
The programs were little publicized that the Obama administration emailed millions of borrowers late last year in an effort to get more people enrolled.
“Right now, student loan borrowers are relying on loan services like Sallie Mae to get advice about their debt,” said Jarvis. “But you have to realize their interests are not aligned with borrowers so people need to understand that they personally need to advocate for themselves independently.”
Deciding whether or not to take the plunge into student debt may appear not to be worth it. But if you look at the statistics, skipping out on school (and its expensive price tag) does not seem to pay off either.
According to the Georgetown Center on Education and the Workforce (.pdf file), by 2020, two-thirds of all jobs will require a post-secondary education, and the Bureau of Labor reports there is an undeniable correlation between higher earnings and a certain level of education.
“Higher education is necessary,” said Zakiya Smith, strategy director at the Lumina Foundation, a private foundation focused on accessible education. “Without a college degree, there is less opportunity -- and as time goes on, college attainment will continue to become more imperative."
As of right now, the price that a student pays for education makes it almost impossible not to accrue debt. But initiatives in a number of states are trying to make a dent in the problem for future generations.
In Oregon, legislation has recently been passed to explore a novel way to fund college in the future. The plan, called “Pay it Forward, Pay it Back,” gives students the option to pay 3 percent of their annual salaries for 24 years, instead of putting money down or taking out student loans.
“It’s outside of the box,” said John Burbank, the executive director of the Economic Opportunity Institute, a non-profit organization where the idea originated. “Everyone has skin in the game. Everyone is contributing the same percent of their income.”
The concept has bi-partisan support with states including Maine, Massachusetts, Maryland, Michigan, Pennsylvania, New York, New Jersey and California all showing interest in the idea, which focuses on borrowers having a long-term financial responsibility instead of having, in many instances, crippling debt.
“It’s a good thing that they are exploring it,” said Jarvis. “It helps to distribute cost in a way that's fair and I think people should embrace the idea because it could be an important part of the solution.”
Competency-based education is another concept that is gaining traction. This idea throws out the notion of curriculums based on credits and time spent, instead focusing on how much you know and could mean fewer years in school (and less tuition).
“It’s not based on how long you’ve been in school or where you learned the information -- but how competent you are,” explained Smith. “And with so much pressure from the general public to have education cost less, we think this could be very effective.”
The Lumina Foundation has been a big supporter of the approach, recently announcing a $1.2 million grant to support an evaluation of the University of Wisconsin’s competency-based program. And with an estimated 37 million Americans with some college experience but no degree, student loan experts like Jarvis are energized about the prospects.
“There is nothing magic about the credit hour, and it could save students money,” said Jarvis. ".... I think it would be naïve to think that successful institutions would rush to make any big changes, and change is always slow to work on campuses. But it’s certainly exciting. It has a lot of potential.”
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VIDEO ON MSN MONEY
Subsidies and government secured loans are why college costs continue to rise. The influx of cash sure isn't producing smarter grads, but the campuses and faculty salaries sure are nice.
Put the 40 hour week and 48 week/yr on the campus and watch tuition drop to affordable levels. I wonder if we will ever see that on MSN.
My daughter and I took a long look at deciding on her college. It came down to a very prestigious private institution in Boston, or a state college. After the final financial packages were in, the state gave us basically nothing while the private college gave her a six figure package, There was still a six figure difference after I advised her on what I could afford to help with.
She really wanted to go to the school in Boston, but I said to her would you rather graduate with a car payment or a home mortgage. She graduated last year summa cum laude from the state college, and is currently enrolled in a Masters Fellowship program at no cost at a "prestigious private institution". She is more than likely assured a job upon completion.
Every article about college costs misses the point by focusing on loans and debt.
The real issue is why is the tuition so damn high. You would think these high powered business schools would focus on efficiency and cost cutting - critical aspects of any business in in the real world.
Where's that exposé?
Bloated college administrations contribute to the cost and so do the miniscule teaching responsibilities of professors, with few classes to really teach and virtual slave labor of grad students to grade work and instruct, produces overpaid professors.
But the biggest contribution to excessive costs are the greedy governance boards which know we will take on huge debt to have our children get into the best college to accept them. The College Plus loans are given away with none of the review and tests which must be met to take a mortgage or car loan. The colleges know this and soak us. These are federally associated loans. Perhaps colleges should be price gauge accountable to the Feds.
This is bullcrap, I pay on my student loans still, am down to the last couple thousand.
You borrowed it, you repay it.
I see so many people dissing college here.
First, let me say its a good idea - IF you know what you want to do. IT lets you cut down on the BS classes they require, and spend only money, time, and credits on what you truly need for a degree.
Second, half the time its the kids faults. I graduated a little over a year ago with 150 credits, as needed to accquire my CPA license. That took me 4.5 years of college. Many people go 5 plus just to get a normal degree instead of the two Bachelors I ende dup with because they cosntantly switch majors and take joke classes to get easy A's.
Third- Its possible to get through college with no debt. I went to a community college initially, got itno the scholars program there which provided me with multiple scholarships along with two study abroad trips and guaranteed admisssion into my State univeristy. Then i got scholarships from transfers. I probably could have got even more if I had looked harder, but I ende dup taking som loans instead.
My friend on the other hand went through 4 years to get an accoutning degree as well, same path through the community college, worked 4 jobs and got straight A's, leaving the college with no debt due to accademic acheivement scholarships and low income scholarships, as he had no parental support since before high school.
My point is, college is still an acheivable and useful goal, provided you plan out what you want and work for it, not use it as an excuse to party for 4 years.
There are other reasons for the student loan issues. I personally think it has something to do with the government taking voer the student loans. Thanks to them I have a loan provided from Michigan(I'm from MD and almost threw away my first letter from them assuming it was spam) that was assigned to me, who has never tried to call me, and who only allows me to make payments through check or direct withdrawal. Where as if I had the choice I most likely could have gotten a better interest rate (My car loan rate was for more money and a much better rate) and have found a place to le tme pay by credit card to get cashback for the payments.
If you have to spend 20 years paying off your student loans there is one of 2 things going on.
A) the economy sucks because of the government getting to involved with programs like this one, causing more tax increases, draining the workforces money pool down so they have less to spend.
B) You are being lazy looking for a job, or are looking at jobs you don't qualify for because you think you should be making $80,000 a year right out of a 4 year school.
Yet another "get something at someone else's expense" program from this administration.
I worked my a** off to pay for college. Get off your lazy a**es kids. Learn responsibility. Earn something for yourself.
:"Fewer than 7 percent of federal direct loan borrowers who are repaying their loans took advantage of the plans as of June 30, according to the Federal Student Aid website."
And why is this? Its because they don't WANT you to know about IBR. Years ago, I explored whatever information I could find to try to get my student debt down. When I talked to the Student Aid people about how to keep my loans from defaulting they told me I had no choice but to make payments or default on the loans. There was never any mention of Income based repayment. So after a the time elapsed without being able to make the payments THEY wanted, I defaulted on my loans resulting in a garnishment which I cannot afford. ONLY then did they mention that if I do a loan rehabilitation can I get on income based repayment that would bring my payments down to $50 a month (from the $400 or so they're garnishing now). Oh, and to rehabilitate the loans, that's just going to cost me a measly $10,000 to do that. And now my second loans are heading into default with no way to pay those since the garnishment is already making me short on necessary bills and there is no way I could even afford another $50 payment at this time. I have ZERO problem with the idea that I should repay my loans since I was the one who took them out. I do, however, have a problem with the shady practices employed that almost guaranteed a default.
26K is very small for any of these milleniums graduating with a bachelor's degree. Then they rack up more student loans for a master's degree. Are we suppose to feel sorry for them? Got to a cheaper college/university. Work while in college and then work after graduating and save up for a graduates degree. This is common sense.
How much more do the average tax payer has to hold the hands of the one that make these mistakes. We are already subsidizing the federal student loans.
Then on the subject of milleniums, they stay on their parents insurance till they are 26yrs old, and can have a baby on their parents insurance. Give me a break.
If any generation was sucking the taxpayer dry, it is the millenium generation. Plus the looks of alot of the upper class highschool and college student are like they are from another planet. Then when they are reprimanded for it, they get on the news and cry about it. Now alot of the schools are not even holding up their appearance codes. The colleges are the worst.
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