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This year, total student loan debt in the United States finally exceeded $1 trillion. This surpasses even credit card debt, which is seen as one of the most negative forms of debt in America. It is estimated that the average student in America has $25,250 in student loan debt by the time he has finished his undergraduate education. By comparison, the average student loan debt in 2000 was $15,100. In 1990, it was as low as $8,200.
Repayment is not a lost cause, though. This October, the White House announced changes to student loan repayment laws. The Pay As You Earn proposal, as it’s called, strives to put a cap on loan repayments based on your income. Maximum student loan repayments cannot exceed 10 percent of one’s discretionary income under this proposal, and any leftover student loan debt is forgiven after 20 years.
There are restrictions to this, certainly. Private loans are not accounted for in this, nor are loans for current students graduating before 2014. PLUS loans, which parents and guardians take out on behalf of their college-aged children, are also not subject to the Pay As You Earn proposal. It is also something which one needs to apply for and present proof of income (in the form of tax documentation, etc.) every year to maintain.
However, it is still better than the original law as passed in 2009, which set the cap at 15 percent of one’s discretionary income, with forgiveness after 25 years the previous Income-Based Repayment plan included.
While this is a good start, more needs to be done for students. Particularly in today’s job market, it’s uncertain whether people will be able to afford college, even with the new proposal. College tuition rates have increased dramatically in the last twenty years, while the maximum Stafford (government-managed) loan amount has remained stagnant for the last eight years, save for increases on the interest rates.
And unlike twenty years ago, a college degree does not necessarily guarantee better job prospects. In order to be looked upon favorably by potential employers, work experience and graduate degrees are more valued than any undergraduate degree. The high cost of education does not fit its value in today’s economy.
Education is far more expensive than its actual value. Simply rehashing student loan payment laws is not sufficient to change this. Particularly in schools whose names are not recognized on a national or global scale, what is paid to the school itself should be proportional to the value they provide the student.
More than loan repayments, higher education itself should be restructured for the benefit of its students. Tuition costs need to align with job opportunities, or they need to be made affordable with minimal loans. Spending twenty years paying off four years of schooling makes little sense.
If the proposed changes are accepted, all of the new student loan repayment laws could take effect as early as 2014. In addition, the Obama Administration is working to allow one aspect of the laws, loan repayment caps, as soon as next year.
It’s a good start, but there’s still plenty left to be done.