Student loan repay, default rules changing

With American college loan debts expected to pass $1 trillion, as reported by USA Today last Tuesday, the U.S. Department of Education announced additional steps the White House administration will take to make college more affordable and to make it even easier for students to repay their federal student loan debt.

Wednesday, the department announced plans to allow borrowers to cap their student loan payments at 10 percent of discretionary income. Beginning July 1, 2014, the income-based repayment plan will reduce the limit from 15 percent.

In the instance of a nurse earning $45,000 with $60,000 in debt, under the standard repayment plan, this borrower’s repayment amount is $690 a month, the White House said. With the new “Pay As You Earn” proposal, the borrower’s payment amount can be reduced by $332 to $358.

The department is also proposing to provide a discount on the consolidation of loans.

“In a global economy, putting a college education within reach for every American has never been more important,” President Obama said in a statement. “But it’s also never been more expensive. That’s why today we’re taking steps to help nearly 1.6 million Americans lower their monthly student loan payments.”

Locally, Eastern Michigan University has begun helping students stay out of college debt through various methods.

The first attempt involved the Board of Regents approving a proposed $2.3 million increase in scholarship money last week.

“Our budget for this fiscal year was $33.7 million and the allocation that we asked for, for this upcoming year was $36 million,” said Kevin Kucera, associate vice president of Student Affairs and Enrollment.

To raise the scholarship money, EMU is working on recruiting more first-year students.

“In our asking of that money, we were projecting we had set a goal that we are trying to recruit 2,400 freshmen for next fall,” Kucera said.

The university managed to recruit only 2,100 freshmen during the fall 2011 semester.

“A million dollars of that $2.3 million request is under the expectation of gaining 300 more freshmen,” Kucera said. “So when you think about that for a moment, about $1.3 million would go on the current students, and then that other $1 million would be on the expectation of recruiting another 300 students.”

Kucera said students could work to pay back loans quicker by graduating in four years rather than five or six. By graduating sooner, people might secure higher paying jobs quicker that will, in turn, assist in paying off loans as quick as
possible.

“We would really like to encourage students who are coming in for their undergraduate experience, in particular the freshmen coming in, to really look at managing your time and managing your courses in such a way that you do complete your degree in a four-year period,” he said.

“Students and parents will oftentimes think about taking out that extra loan or having an extra tuition cost for that year. But what they sometimes don’t think about is the lost income that could have been out there if you had graduated in four years and started your first professional job.”

College debt sometimes occurs as a result of a student’s failure to graduate.

Without a degree, a student dropout might be unable to secure a job that pays well enough to pay back college loans.

“Often times when you see defaults, it’s students who never completed the degree,” Kucera said. “Because if you start out with the intention of completing the degree and you’re taking on loan debt, more often than not, you can handle the repayment if you have a nice paying job.

“We always encourage our students to understand that once you’re first done with your undergraduate experience, and you’re out in the working world, your starting out at an entry level salary and as you progress and make career advancements, you may want to elect to pay off that loan more rapidly.”

Even students who do receive financial aid can fall into debt by borrowing more aid than what they need.

“I love to really emphasize to students that when we do award financial aid award letters, we list loan amounts that students are eligible for, and it always is the maximum amount,” Kucera said. “Now who’s to say you need the maximum amount?”

Students who expect more financial aid than what they need to pay for college can then end up with having to pay back money they never used, having requested more aid than they needed.

“If you can minimize your reliance upon your student loan, that’s a great thing in the long run, because again, it’s less interest you’ll have to re-pay ultimately,” Kucera said. “A student loan is really an investment in yourself. And it’s an investment in your ability to complete what you thought you were going to do.”


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