Current Issues Affecting Your Money
News on the Student Loan Front
Student loans are a hot topic right now and for good reason. Approximately 37 million Americans have outstanding student loan debt to the tune of over $1 trillion. That’s trillion with a “t!” What’s more, the average amount that a student owes upon graduation has steadily increased year after year. That figure is up to about $29,000.
Not only has the amount that students are borrowing increased, but the interest rate on those loans has increased as well. Due to legislation passed last year, student loan rates are set once each academic year in accordance with the rate of the 10-year Treasury note. This year, the rate on the 10-year Treasury note went up, so interest on student loans went up too.
Rising college costs and interest rates, combined with a recession that decreased job prospects for graduates, created what some have deemed a crisis. Indeed, almost 12% of student loan borrowers are at least 90 days behind in their payments. That’s more than the current delinquent rate on all credit cards and represents an increase of about 90% over 2010.
Furthermore, the student loan debt doesn’t just impact those who have outstanding loans. It impacts everyone via the U.S. economy. Individuals who are encumbered by student loans have less disposable income. They’re less likely to make purchases, especially major ones like cars or homes, which has a negative impact on the economy.
Given the present situation, student loans have captured the attention of lawmakers, and in June President Obama issued an executive order regarding student loans. Here’s a snapshot of what that executive order did:
Expanded the Pay as You Earn (PAYE) program; The executive order made more borrowers eligible to participate in PAYE, a program that allows new borrowers to pay a maximum of 10 percent of their discretionary spending (what they make above the federal poverty level) and provides loan forgiveness after 20 years of responsible payments. Even better benefits are available to individuals who work in public service. For more information on PAYE and to determine whether you are eligible to participate, visit the Federal Student Aid website.
Began development of improved student loan counseling; If you’ve ever taken out a student loan, you probably completed loan counseling, but current counseling has been criticized as being ineffective. The executive order called for a partnership between the DOE, the Treasury Department, and researchers to develop ways to help students better understand the ramifications of their loans.
Strengthened incentives for lenders to serve students well; The DOE administers the federal student loan program through private companies, so those private companies are contracted for their services. The DOE will be renegotiating its contracts with private companies with a focus on providing incentives to them for helping borrowers repay on time, lowering payments on delinquent or defaulted loans, and providing for loan customer satisfaction.
These are just initial efforts. More changes on the student loan front are expected, especially as we enter the congressional election season. Be sure to keep an eye out for changes that may impact your student loan situation.
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