President Barack Obama’s executive order makes it cheaper to settle student loan debt. It also makes it possible to consolidate certain loans with the government, lowering overall interest rate, and it accelerates changes to the existing income-based repayment plan.
For those who qualify, current loan payments can’t be more than 15 percent of a borrower’s discretionary income. After 25 years of payments, any remaining balance will be forgiven.
Starting next year for new borrowers, the limit will drop to 10 percent of discretionary income, and loans will be forgiven after 20 years.
“It’s simply pushing the burden on the taxpayers,” said Nate Benefield, director of policy analysis with the Commonwealth Foundation, a conservative think tank in Harrisburg, Pa.
He said all that forgiven money has to come from somewhere, “and that means that these same college students are going to have to be paying higher taxes in the future because of the debt we’ve accrued with these new programs.”
Benefield said the plan has other drawbacks.
“It really encourages bad personal financial practices by saying, ‘Well, if you accrued a lot of debt, and took a job that doesn’t pay a lot of money, we’ll just help you out and give you some money.'”
Stephanie Anderson, a graduate student at Temple studying social work, doesn’t have a problem with getting that help.
“It’s just an enormous relief,” said Anderson.
She estimates the changes will save her almost $200 per month. Plus, she’ll probably get a lot of her $60,000–plus loan forgiven down the road.
But Anderson does have a problem with Benefield’s argument that she somehow made a poor personal finance decision.
“I don’t think people take out student loans to be irresponsible with money,” she said. “I think they go to school to further their education and career.”
That, she said, is good for the economy.
The Obama administration says the changes will lower payments for 60,000 Pennsylvania residents, 20,000 New Jersey residents and 4,000 Delaware residents.