At the University of Colorado on Oct. 26, President Barack Obama revealed his plan, “Pay As You Earn,” to help ease the burden of student loans.
Obama announced to students the plan will reduce the maximum required payment on student loans from 15 percent of discretionary income annually to 10 percent.
In addition, the repayment of student loans will be forgiven after 20 years instead of 25.
According to whitehouse.gov, the plan will be put into effect in 2012 and will reduce monthly payments for more than 1.6 million borrowers.
Jamicha Phelps, sophomore from Cleaton, Ky., said the government needs to do something to help people with the increasing amount of student loan debt.
“Anything that saves people money is a good idea,” Phelps said.
According to the U.S. Department of Education the official fiscal year 2009 national student loan cohort default rate has risen to 8.8 percent, up from 7 percent in FY 2008.
Nationally, student debt will exceed the $100 billion mark this year.
Lori Mitchum, director of student financial aid-scholarship and enrollment management, said the policy is still new and not much is known about it.
“At this time, it is really hard to determine how many students from MSU will participate,” Mitchum said. “They do need to research and determine if this is their best option. They can begin contacting the Department of Education in January with the final date to apply June 2012.”
She said only a certain amount of students will qualify for the new loan policy.
“From what I understand it is only going to affect a certain number of students – not all of them,” she said. “It is unlikely it will have any affect on Murray State students unless they took some direct initiative.”
According to the National Association of Student Financial Aid Administrators’ (NAFSFAA) Special Direct Consolidation Loan Information report, to be eligible for the plan, borrowers must have at least one ED-held Direct Loan or ED-held FFEL loan and one commercially held FFEL loan.
The report said eligible borrowers will be contacted by one of four federal loan services starting in January. Given the number of eligible borrowers, these contacts will occur over several weeks.
Students who borrowed loans before 2008 will not be eligible for the plan.
Justin Wheaton, sophomore from Benton, Ky., said there could be some repercussions to Obama’s new plan.
“I think there is a possibility it could be a problem,” Wheaton said. “If you have to pay back $80,000 and after 20 years you have only paid back $60,000, where is the rest of the money going? Schools will be losing money then.”