The future of student loan repayment

Yesterday, the president announced new programs designed to relieve heavy student loan debt burdens. In my opinion, the changes are a very small step towards repairing a broken system; they will, however, successfully impact the lives of those with high debt loads (law and medical students, for example) and low incomes.

The major change announced yesterday is that reforms passed last year, which were not set to take effect until 2014, will be available to borrowers beginning in 2012. From now on, direct student loans (loans issued by the federal government and not a private bank) can be repaid based on income (payments will not exceed 10 percent of your “discretionary” income, which is defined as income above and beyond 150 percent of the poverty line), and the remainder (principal and interest) will be forgiven after 20 years.

Yesterday, the president announced new programs designed to relieve heavy student loan debt burdens.  In my opinion, the changes are a very small step towards repairing a broken system; they will, however, successfully impact the lives of those with high debt loads (law and medical students, for example) and low incomes.

The major change announced yesterday is that reforms passed last year, which were not set to take effect until 2014, will be available to borrowers beginning in 2012.  From now on, direct student loans (loans issued by the federal government and not a private bank) can be repaid based on income (payments will not exceed 10 percent of your “discretionary” income, which is defined as income above and beyond 150 percent of the poverty line), and the remainder (principal and interest) will be forgiven after 20 years.

The changes mean nothing, however, to anyone who has already borrowed money.  You must be a “new borrower” (no pre-existing loans) in order to qualify for the program.

So for the tens of millions of Americans who currently cumulatively hold more than $1 trillion in student loan debt (which is, by the way, a sum just over 7 percent of our country’s GDP)… well, so what?  The reforms don’t touch them.