As posted on FosterEDU blog
The student loan crisis is often talked about, but what the headlines rarely show are the changes to legislation that help lessen the burden of student debt. Small adjustments to statutes for student loan repayment are making a big difference in terms of education affordability. Legislation is in place right now to help make college attainable to all students willing to put forth the effort. To best inform your students of their tuition payment options, it’s important to understand the past, present, and future student loan programs.
PAST
The 1960s marked the beginning of federal government subsidies for banks and private lenders. The goal was to enable lenders to use these significant contributions to loan money for college tuition. Under this option, banks set interest rates and repayment schedules based on their discretion.
Years later, in the 1990s, a new option was granted for student lenders that allowed students to borrow directly from the U.S. Department of Education. Students who opted for this route were eligible for an income-based repayment (IBR) program, which provided students with a capped monthly payment of 20% of the borrower’s monthly income after deduction of living expenses. The program, though beneficial to students, lacked the ability to compete with private lenders who already had a large hold on the market, and therefore IBR remained nearly obsolete.
Student Takeaway
It’s time to put student debt fears aside. Yesterday’s high interest and one-size-fits-all repayment programs no longer apply. Changes are in place to reconstruct college education, making post-secondary education a matter of ambition, not affordability.
PRESENT
Many are familiar with the Affordable Care Act, but what many don’t know is the legislation also pertains to education. Responsible for shutting down government-subsidized private sector loan programs and bringing the IBR program to life by adding more more generous repayment terms, the enactment denotes a huge win for student loan reform.
Student Takeaway
Today, students can borrow directly from the federal government’s IBR program. Under this act, borrowers are now subject to pay only 10% of their income per month. The bill goes on to grant a forgiveness threshold of 20 years. This means if a student has not completed full repayment after 20 years, the outstanding loan amount is then forgiven and covered by the government. The deal sweetens for those who go into the government or nonprofit sector, where forgiveness is granted after only 10 years.1
FUTURE
IBR is only the beginning of student loan reform. Talks of further improving college degree attainment are in the works. For example, the latest proposal from the Center for American Progress (CAP) offers solutions for simplifying and streamlining student loan repayment system.2 According to CAP, the College for All proposal calls for modernizing the repayment system by utilizing the Internal Revenue Service’s (IRS’s), wage-withholding system to repay student loans automatically.
Student Takeaway
By modernizing the system, borrowers would not only be eligible for simple, affordable repayment terms based on income but they would be enabled to proactively manage student loan debt via the automated repayment option.2 To increase enrollment, CAP’s proposal would offer incentives to borrowers. The proposal also advocates for this automatic loan repayment option to become the default method of repayment.
FUTURE
Reform isn’t limited to government programs. Many employers are getting on board with education affordability programs. For example, coffee giant Starbucks is paving the way with their employer subsidized college education programs. The future of education is bright, great programs are already in place to help students fulfill their educational aspirations, and the possibility for greater benefits are in the works.
Student Takeaway
Students should check with their employers benefits department and see if there are subsidies, tuition discount programs or other tuition assistance programs in place, as more and more employers begin to offer education benefits.
