Student Debt

Recent and soon-to-be college graduates will soon have a new option to help keep their federal student loan payments manageable and avoid default—the Pay-As-You-Earn repayment plan recently finalized by the U.S. Department of Education.

Students graduating from college this year are entering the job market with record student debt and facing near record unemployment rates. Half of recent college graduates are either unemployed or underemployed—the highest share in more than a decade.  This makes the new student loan changes particularly timely.

Pay-As-You-Earn is designed to help these recent and soon-to-be college graduates, allowing them to make lower income-based monthly payments on their loans than the current Income-Based Repayment (IBR) and Income-Contingent Repayment (ICR) plans allow.  Pay-As-You-Earn will also provide loan forgiveness after 20 years rather than 25 years of payments, allowing borrowers to more easily save for retirement and help their children pay for college.  To be eligible, borrowers must have taken out their first federal student loan after September 30, 2007 and received a loan disbursement after September 30, 2011—meaning primarily recent undergraduates.

Some have questioned how much borrowers with modest incomes will benefit from the plan.  In fact, such borrowers will receive significant relief. Here are just a couple of examples:

  • For students leaving school in 2012 or later with $26,600 in federal loan debt (the average total debt for borrowers in the Class of 2011) and earning $25,000 a year (adjusted gross income), Pay-As-You-Earn will lower their monthly payments by about one-third (from $103 to $69) compared to the current IBR plan.
  • Pay-As-You-Earn will also provide significant repayment relief to the many working adults who went back to college during the economic downturn.  A married recent graduate with two children, an adjusted gross income of $45,000, and $26,600 in federal loans will also see his or her monthly payments reduced by one-third (from $130 to $87) compared to the current IBR plan.

No one repayment plan will be the best or most affordable option for everyone, but particularly in today’s economy, many borrowers are struggling to avoid delinquency and default.  With the Class of 2012’s first student loan payments coming due starting this month, for many, Pay-As-You-Earn cannot come soon enough.

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TICAS vice president Pauline Abernathy served on a panel at the American Enterprise Institute (AEI) on September 19, 2012 . The event’s focus was on providing better information about earnings and outcomes for potential college students and their families, in the wake of increasing costs, rising student debt, and uncertainty about employment. Abernathy stressed the importance of meaningful disclosures that make sense for both students and schools, driving her points home with real-life examples.

Watch the video of Pauline illustrating ”meaningful disclosure”!

 

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In a victory for community college students, the Kern Community College District Trustees have postponed a vote on whether to do away with access to federal loans at Bakersfield College in California. For those who can’t otherwise afford to attend or finish school, federal student loans are the safest way to borrow.

Trustees had planned to vote on the issue yesterday, but after hearing from several concerned students, they decided to table the vote until late fall and convene a workgroup to learn more about student loans.  In making their decision, the trustees restated their commitment to promoting student success.

The Student Senate for California Community Colleges (SSCCC) recently urged all California community colleges to offer federal loans. The SSCCC, along with the California Community College Association of Student Trustees (CCCAST) and TICAS, also shared their concerns with the Kern District trustees in advance of yesterday’s meeting. Key among these concerns is that without access to federal loans, students who need to borrow must turn to riskier private loans, work excessive hours, drop courses or drop out altogether.

Today’s outcome is a great example of what can happen when students and citizens speak up about issues that concern them. We applaud the Kern trustees for seeking to better understand the issue and make the best decision for students.

While today’s development is good news for Bakersfield College students, the U.S. Department of Education can and should do more to support federal loan access at community colleges.  Colleges that pull out of the loan program often do so because they fear sanctions related to default rates.  In fact, colleges like Bakersfield College – where relatively few students borrow – are protected from these sanctions because of their low borrowing rate.

To support colleges making decisions based on fact rather than fear, it is critical that the Department:

  • urge the Bakersfield College trustees not to deny their students access to federal loans;
  • remind Bakersfield and other colleges with low borrowing rates about available appeals and clarify that they are at low risk of sanctions – or, as in Bakersfield’s case, no risk at all; and
  • highlight what colleges and servicers can do to prevent defaults and to improve their loan counseling and student success.
 
 

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On Saturday, June 30, a judge on the U.S. District Court for the District of Columbia issued a decision in APSCU v. Arne Duncan et al which challenged the Department of Education’s gainful employment regulations. Those regulations apply to career education programs at public, nonprofit and for-profits colleges and were set to go into effect on July 1.

TICAS Vice President Pauline Abernathy issued the following statement in reaction to the ruling:

The Federal District Court decision issued this weekend leaves students and taxpayers exposed to unscrupulous schools that seek to swindle them and routinely saddle students with debts they cannot repay.

However, the court decision did affirm both the Education Department’s authority to enforce the gainful employment provisions in the law and the need to do so.  The court concluded that “The Department has set out to address a serious policy problem, regulating pursuant to a reasonable interpretation of its statutory authority….Concerned about inadequate programs and unscrupulous institutions, the Department has gone looking for rats in ratholes—as the statute empowers it to do.”

The court ruled that the Department did not provide adequate rationale for picking the 35% threshold for program repayment rates, leading it to vacate the entire rule as a result.  The decision faults the rationale for the 35% threshold, not the importance of the repayment rate measure, which effectively assesses the extent to which a program’s former students are able to pay down their loan principal.  Indeed, nearly two years ago, dozens of organizations advocating for students, consumers, higher education, civil rights and college access urged the Department to raise the repayment rate threshold, writing, “This standard is simply too low to demonstrate that programs are adequately preparing students for gainful employment.”

With student debt levels rising and 30 state attorneys general from both parties jointly investigating for-profit college industry practices, the need for action has never been more urgent.  To protect students and taxpayers, we call on the Administration to swiftly respond to this court decision and on Congress to promptly adopt bipartisan legislation that prohibits any school from using taxpayer dollars to advertise and recruit students and closes the “90-10 Rule” loophole that allows schools to count GI Bill funds and Department of Defense Tuition Assistance as private rather than federal dollars.

 

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Some community colleges and for-profit colleges have expressed concerns that their students borrow more than they really need in federal loans. We looked into available data and found no evidence that “over-borrowing” is a problem at either community colleges or for-profit colleges. Read our fact sheets dispelling the “over-borrowing” myth at community colleges and for-profit colleges.  

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CNBC's "Price of Admission: America's College Debt Crisis" The Institute's president Lauren Asher appears in CNBC's original documentary "Price of Admission: America's College Debt Crisis," weighing in on the rising cost of college and student debt in the United States.

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