NATIONAL/INTERNATIONAL
Federal Loan Changes to Help Students
by John Filcik
President Barack Obama recently an-
nounced plans to ease student loan debt for
college graduates, plans that will affect Cedar-
ville students and graduates as well.
Creeping over the $1 trillion mark, stu-
dent loan debt has recently surpassed credit
card debt in America. Many say these numbers
call for reform, but it’s unclear what kind of re-
form is needed.
Fred Merritt, Director of Financial Aid at
Cedarville, agrees that the current system is
not entirely ideal.
“It’s a little bit scary,” Merritt said, “in
that some loan programs are now so easy to
get that students can wrack up pretty large stu-
dent loan balances just because the funds are
there.”
In an effort to amend the system to some
degree, President Obama has announced new
financial aid programs that aim to make it eas-
ier for college graduates to pay off student loan
debt. The new program consists of two main
components: a loan consolidation option and a
monthly payment minimization.
Two years ago, there were two federal loan
programs, but in 2010, Congress abolished the
Federal Family Education Loan (FFEL) pro-
gram, leaving only the Federal Direct Loan
Program (Federal Direct) for new borrowers.
Many borrowers who first took out stu-
dent loans before 2010 were left paying two
monthly payments, one for each type of loan.
As a result of Obama’s new programs, bor-
rowers have the opportunity between Jan. 1,
2012, and June 30, 2012, to consolidate both
loan payments into one monthly payment and
lower the interest rate on the loans.
It is predicted to affect the over six million
people who have at least one Federal Direct
Loan and one FFEL. Those in the Cedarville
class of 2012 or 2013 who took out student loans
before 2010 will be affected and, according to
Merritt, should take advantage of this incentive.
“Overall, it’s a great program,” Merritt
said. “Our students will be able to take advan-
tage of that and should because it’s to their ad-
vantage to do so.”
Not only is this part of the program ben-
eficial to borrowers, it also benefits the federal
government. The simplification of loan pay-
ments reduces risk of default, and the transfer
of FFEL loans to the Direct Loan program re-
duces costs for the Department of Education.
The second change to the existing pro-
gram involves minimizing monthly loan pay-
ments and providing loan forgiveness after 20
years. Under the current system, monthly loan
payments are limited to 15 percent of discre-
tionary income. President Obama’s new “Pay
as You Earn” plan minimizes monthly pay-
ments to 10 percent of discretionary income, a
plan that the administration estimates will re-
duce monthly payments for 1.6 million people.
For example, if a Cedarville student with
$25,000 worth of debt were to graduate and
obtain a teaching job that pays $30,000 a year
his monthly payment would amount to $171
under the current system. With Obama’s “Pay
as You Earn” plan, which goes into effect in
January, his monthly payment would be re-
duced to a more manageable $114.
The final facet of Obama’s plan allows new
borrowers who pay monthly payments for 20
years to have their student loan balance forgiv-
en. This is decreased from 25 years under the
current plan. Merritt said this wouldn’t have a
major impact on Cedarville students, however.
“On average a CU student graduates with
$20,000 in debt,” Merritt said, “so it’s not very
impactful for CU students because they will
have their loans paid off before that 20-year
limit.” Merritt said the high-end, student loan
debt mainly involves people pursuing post-
graduate degrees, whether that is from gradu-
ate school, medical school or law school.
Despite the advantages of the current
plan, Obama has drawn fire for his unwilling-
ness to allow Congress to vote on the matter.
Instead, he announced it in the form of an
executive order. Chelsea Gruet, a Cedarville
senior, doesn’t necessarily find fault with this,
however.
“I’m just glad someone’s doing something
in this economy to help college graduates pay
off their loans,” Gruet said. “The only thing I’d
be cautious about is giving loans to people who
really shouldn’t have them.”
Mike Clark, another Cedarville senior, of-
fered the suggestion that the president needs
to maintain a greater focus on securing the ini-
tial finances necessary for a student to attend
college.
“Loan forgiveness only helps those who
were fortunate enough to get into college in
the first place,” Clark said. “What good is loan
forgiveness, though, if you can’t even secure a
loan? I’d rather see more effort placed into get-
ting kids in school where they will have a better
chance to make a living for themselves.”
Merritt contended that Obama’s plans
wouldn’t substantially affect the current Ce-
darville financial aid programs.
“Here at Cedarville, we can put together
a financial aid package that makes it possible
for every student to attend Cedarville if they’re
willing to accept that package,” he said. “That
package will include student loans and may in-
clude parent loans, as well.”
Obama formally announced his new finan-
cial aid programs Oct. 26 in front of an audience
of University of Colorado students. He empha-
sized the effect the programs would have on al-
lowing American young people the ability to go
to college, make a future for themselves and not
be crippled by student loan payments.
Finally, the President emphasized the eco-
nomic benefits that would stem from the new
programs, both for individual Americans and
for the American economy as a whole. It would
help young people determine how to afford
college, help them have money in their pocket
upon graduation and as a result, help them be
more confident and able to buy a house and
save for retirement.
“[This program] will give our economy a
boost at a time when it desperately needs it,”
Obama said. “[It] is not just important to our
country right now; it’s important to our coun-
try’s future.”
Student Loan Debt By the Numbers
Total Student Loan Debt in America
$1 trillion
Average Debt for a Cedarville Graduate
$20,000
People the Loan Consolidation
Program is Expected to Affect
6 million
People the Payment Minimization
Program is Expected to Affect
1.5 million
Years Till Loans are
Forgiven Under Current System
25
Years Till Loans are
Forgiven Under New System
20
More content updated daily at ReadCedars.com
12
December 2011
Sources: Fred Merritt and
