Obama quickens student loan change

Nov. 2, 2011, 2:40 a.m.
Obama quickens student loan change
CAROLINE SHEN/The Stanford Daily

A new federal policy change announced by President Obama last Tuesday, designed to help students manage their college loan debts, may not affect many students at Stanford, according to Director of Financial Aid Karen Cooper.

“This policy change will have a medium impact on Stanford students,” Cooper said.  “In general, our students don’t have problems repaying their loans.”

Cooper said she spent this past week in New York at the College Board’s National Forum, where she and her colleagues from universities around the country discussed the role of education in the upcoming election, and in particular, Obama’s recent announcement.

Obama used an executive order to bypass Congress and ensure the passage of the law this year instead of 2014, when the legislation was originally expected to go into effect.

The new measure attempts to help Americans by offering a “Pay as You Earn” proposal, which will take effect in 2012. The “Pay as You Earn” option caps monthly loan repayments at 10 percent of a student’s discretionary income – down from 15 percent.

Additionally, remaining student loans would be forgiven after 20 years instead of 25 years.

According to a White House press release, the policy could affect about 1.6 million borrowers. The statement also said that student loans are currently the second highest source of household indebtedness for Americans.

“These measures are a reassurance to students,” Cooper said. “It’s a good promise that taking out loans won’t get [the students] into trouble.”

According to Cooper, the federal government determines the amount of discretionary income by “collecting information from the students about their annual income, about their family situation and whether they are supporting other people, such as children, and then setting a minimum poverty level.”

She said that Stanford students historically have not had problems paying the minimum monthly repayment.

“[Stanford] students are able to find work after graduation and therefore paying the minimum monthly payment is not an issue,” Cooper said.

“We have one of the lowest default rates in the country,” she added, noting that Stanford’s average default rate is 0.8 percent, compared to the national average of 8.8 percent.

Only around 28 percent of Stanford undergraduates who graduated last year had any debt, Cooper said, with the average indebtedness at $16,458 – much lower than the national average of about $24,000.

“The standard repayment period for Stanford students is about 10 years,” she said. “Few students will be affected by these new measures simply because it is uncommon for Stanford students to take more than 20 years to repay their loans.”

The White House said in a press release that the changes would carry no additional costs for taxpayers and instead could save as much as $2 billion. Borrowers would be able to consolidate a Direct Loan from the federal government with one issued under the Federal Family Education Loan Program and would no longer have to pay a subsidy to a lender, which could save the government money, the press release said.

The new policy has received criticism from Republican presidential candidates, including former House Speaker Newt Gingrich and Rep. Michele Bachmann, R-Minn. Obama stated last Wednesday that the law would boost the economy because debt-saddled borrowers would be able to spend money on expenses such as homes.

“The message doesn’t really change for our students,” Cooper said. “It’s just one more option.”

Josee Smith is a senior this year, majoring in anthropology with a minor in Spanish. She is the desk editor for the student groups beat and has spent her last 3 years at The Daily as both a staff writer and contributing writer. Originally from Washington State, Josee came to California for the warm weather and stayed for the awesome reporting. To contact her, please email jsmith11 'a' stanford.edu.

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