New student loan program helps college grads bear loan debt

If President Obama hadn’t published two best-selling books which brought in a nice heap of cash, he and Michelle might still be paying off their hefty college debt. Unfortunately, most college graduates can’t expect to experience that kind of good fortune.

Today, two-thirds of four-year college students leave school with debt, crowding out many of their options and dreams like buying a home, starting a business or taking enough time to find the job they trained for instead of taking any position just to pay their mounting bills.

Luckily for new grads entering the worst job market in many years, a provision of a bill passed in 2007 and supported by Senator Patty Murray (D-WA) will give many college graduates a way to lessen their college debt burden.

Starting on July 1, the Income-Based Repayment program will allow federal student loan holders to ask the government to limit the payment on their loans to fifteen percent of their income. The program applies to federal student loans made under either the Direct Loan or Federal Family Education Loan (FFEL) program and can be applied to new or existing loans.

The new program sets monthly payments based on adjusted gross income and family size. Unpaid principal and interest is generally added to your loan amount. Any debt remaining is wiped out after 25 years - or after 10 years if you work in the public or nonprofit sector.

If you are unemployed, low-income or have a very large debt, you could qualify.

If you are an Ivy League grad with a high-paying job but with an even higher student debt like the Obamas, you are still in luck, as there is no income limit.

If you graduated in May or June and the hostile job market is making it hard to find a good job in your field, you won’t have to start loan repayment until November or December, giving you extra time to keep up the job hunt.

Considering the rising cost of tuition at Washington’s public universities (an increase of about thirty percent over the next two years) and an unwelcoming job market, this program comes not a moment too soon. Families’ economic troubles are helping to push student loan defaults to their highest rate since 1998.

Students who owe money on private student loans won’t receive such good terms. Private loans have soared from seven to twenty three percent of all student loans, and there is no limit on the interest rate and fees that their lenders can charge. It is almost impossible to get out from under private student loan debt even by filing Chapter 7 bankruptcy due to recent stricter bankruptcy law.

The escalating cost of a college education shouldn’t scare off students who want to improve their lives through education. Giving college graduates a fair deal on their student loan repayment gives them the freedom to pursue their dream jobs or start saving for a home or a family.


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