White House student loan proposal won't help many

 

The White House rolled out the proverbial red carpet last week to announce the administration's latest proposals to make college more affordable for students. But it turns out the latest plan, which will expand a version of income-based repayment to more borrowers with federal student loans, among a few other components, probably won't do much to make college more affordable, nor will many students likely notice a difference.

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The specifics of the plan aren't yet clear. From what we do know, though, the White House plans to offer a version of the income-based repayment plan for student loans it introduced back in 2010 to borrowers who took out loans before 2007. That 2010 plan lets borrowers repay their loans at 10 percent of their income (minus an exemption for costs of living and household size) and receive (taxable) forgiveness on the full remaining balance after 20 years. The new plan will have to be determined through a lengthy regulatory process headed up by the U.S. Department of Education, though, so the details won’t be known for a while.

There is one place we can look to get some answers: The president’s 2015 budget request, released in March of this year, included a similar-sounding proposal (albeit without all the fanfare). That version of the proposal still used the 10 percent, 20-year repayment terms, unless the student borrowed more than $57,500 (the maximum amount independent undergraduate students can borrow); anything over that, and borrowers would become eligible for forgiveness after 25 years, instead. It also eliminated a cap set on borrower's monthly payments.

If last week's proposed plan looks like the budget request did, cost estimates are in the $7.6 billion range. That's a lot of money for a plan that won't do much to help college students.

For starters, the latest Obama proposal only helps borrowers who have likely all already left college — all of whom are eligible for other income-based options if they're struggling to repay their loans. (Future borrowers will be eligible for the already-introduced terms moving forward.) And as my colleague Alex Holt noted earlier this week, the White House seems to have gone to great pains to note that the plan will only be available to Direct Loan borrowers. But the bulk of pre-2007 borrowers took out loans under the now-defunct Federal Family Education Loan program instead, so eligibility may be even more limited than expected.

Furthermore, although income-based plans have been available to borrowers for years, only 2.2 million borrowers of 17.5 million in the federal Direct Loan program have opted into any of those plans. That's largely because those plans require borrower effort and know-how to enroll in the plan and resubmit information annually. And the system only gets more complex with each new layer of loan terms and repayment plans added by Congress and the White House.

Meanwhile, student debt is still growing, and borrowers are stuck navigating the maze of opportunities available to them. Gimmicks like this one don't help much — in fact, they make the system even more complex. But there is good news: The complexity and overlapping benefits baked into the system leave a prime opportunity for lawmakers in Congress to make real changes to it.

McCann is a policy analyst with the Education Policy Program at the New America Foundation. Follow her on Twitter.