Two new methods for paying off federal student loans could help those facing financial hardship, but they might not be the best option.
According to the National Association of Student Financial Aid Administrators, the Obama Administration will offer a 0.5 percent reduction in the monthly payment for borrowers who choose to consolidate their Federal Family Education Loans and Direct Loans. This option will only be available between Jan. 1 and June 30, 2012.
The administration also fast-tracked changes to the income-based repayment program, which was supposed to take effect in 2014 but will now begin in 2012. This plan will drop the monthly payment limit from 15 to 10 percent and will forgive any debt left after 20 years, rather than 25 years. The standard repayment term for a loan is 10 years.
Director of Financial Aid Ann Brill has “mixed feelings on this plan.” Although she saw this as a “band-aid approach” for students struggling with their students loans, she still believes that the more “relief we can give to students in [these] tough economic times, the better.”
“Long story short,” Brill said, “the benefit is you’re getting a lower monthly payment … the con is that you’re going to paying the loan back over a longer period of time,” so the student would pay more interest in the long run.
The purpose of this plan is to help students right out of college who might otherwise default before they get on their feet. Brill said the plan would not only help students — whose credit ratings would take a hit if they default on their loans — but also Knox, since it could lower the college’s default rate which affects the appropriation of federal aid.
Brill does not believe this is the best approach for every student and students should “be careful consumers and do their research” to find out which option is best for them.
For some Knox upperclassmen looking at the difficult job market, these refinancing options may seem like a welcome source of relief.
Senior Irene Carlson thought the plan sounded “awesome.” Since Carlson is not going to grad school right away, she will need to start paying her loans off in six months, which she finds “kind of scary,” and the opportunity to make lower payments may be worth the long term costs.
“I think the thing Obama’s doing is a really good idea,” she said.
Senior Brianna McCracken thinks the plan seems “a little silly,” but still believed it could help students and is “a good option to have,” even if she does not plan on utilizing it when she starts paying back her loans.
“I wouldn’t mind paying more in the short term so I wouldn’t have to end up paying more in the long run,” she said.
“I’m scared about the job market,” junior Torri Baird said. She would consider the plan; as an environmental studies major, she would need to go to graduate school to get a good job, but she is not sure she wants to do that, so this plan could help her pay off her loans even if she cannot find a great job after graduation.
Although loans weigh on seniors and juniors, for other students the loans are still a far away problem.
Sophomore Kelsey Cullum said she wanted to explore the options more.
“I will have to be repaying these loans; I want to do what’s best for me specifically,” Cullum said. She went on to say that she is not going to worry about the loans yet.
“I’m putting it off for now. I know it’s in the future, but I’m allowing myself not to worry about it for the moment,” she said.