Student Loan Plan Offers Help In Hard Times

Students worried about the burden of college debt now have another option for repaying their loans at a slower pace if they fall on tough times. That could be good news for some students in Kansas, where average undergraduate debt is more than $20,000.

On Dec. 21, the U.S. Department of Education launched a new “pay as you earn” option, which caps monthly payments at 10 percent of the borrower’s discretionary income and clears any remaining balance after 20 years.

The closest repayment option previously available was an income-based plan that caps payments at 15 percent of discretionary income and forgives loans after 25 years.

Discretionary income is calculated by subtracting a figure that is 1.5 times the poverty level (based on family size and location) from the borrower’s adjusted gross income.

Not everyone is eligible for the 10-percent cap, however, and not everyone thinks it is a good move.

The U.S. Department of Education said about $1.3 million borrowers are currently paying back loans under the 15-percent cap. To qualify for the 10-percent option, borrowers must not have received loans before Oct. 1, 2007, and must have received a loan disbursement since Oct. 1, 2011.

Only certain loans qualify: Federal direct loans are in, but federal family education loans are out.

Additionally, borrowers need to be experiencing “partial economic hardship,” which is calculated based on income, debt burden, family size and other factors.

Proponents say the new plan will help more people avoid defaulting on their loans. The most recent U.S. Department of Education data show about 13 percent of federal student loan borrowers default on payments within three years. Going into default can affect a borrower’s credit rating, resulting in problems securing other loans, such as home mortgages, signing up for utilities or applying for insurance, for example.

Though paying off loans more slowly also means accruing more interest, the Department of Education said the new payment plan could help former students through economic rough patches — especially in the initial years after graduation. Once a borrower is no longer experiencing financial hardship, he or she no longer qualifies for the lower cap.

But critics worry that loan forgiveness and low caps on loans relieve pressure on schools to keep tuition reasonable, while also making students more willing to take on too much debt.

In recent years, student debt has drawn increasing attention as total national student loans have grown. According to the Consumer Financial Protection Bureau, national student debt — including private loans — is now more than $1 trillion.

At The University of Kansas, average student loan debt for seniors graduating in 2010-2011 was more than $22,000. The figure was similar at Kansas State University.

That is a little lower than the national average. According to the Project on Student Debt at the Institute for College Access and Success, the national average for seniors graduating in 2011 was about $26,000.

Statewide, average student debt in Kansas is about $23,000, with 64 percent of college students graduating with loans, the institute says.


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