Feds Working Toward Student Loan Relief

As of July 1st 2009 students with federally guaranteed loans now have the option of a monthly payment cap based on income level. The College Cost Reduction and Access Act took effect on July 1st of this year, providing opportunities for a college loan payment cap. According to the terms of the bill any graduate with a federally guaranteed student loan or loans can apply for a limitation on the monthly payment to a sum equal to 15% of “discretionary income.” The legislation defines discretionary income as any income over 150% of the poverty level.

According to the Washington Post that limitation can mean a lot to recent graduates who are coming out of college and finding a shortage of employment opportunities. Those who are forced to take a job at a lower pay scale than anticipated can find themselves scrambling to make loan payments and rental payments at the same time. While most student loans have federal guarantees, there is also a federal cap on total guaranteed debt. Students who need to borrow beyond this figure also have private student loans that will not be subject to payment limitation.

Also taking effect is a loan elimination opportunity as established by the Public Service Loan Forgiveness Program. This legislation will allow for loan forgiveness after a period of ten years, if the borrower is working for the government or for a non-profit organization. This program applies only to loans that have been obtained directly from the federal government and is also subject to pay scale limitations.

Despite the monthly payment cap, the loans continue to accrue interest. Loans may be forgiven after twenty five years under certain circumstances, but a capped loan payment will severely skew the reduction of loan principal. Students who need loan relief upon graduation may wish to readjust loan payments upwards after reaching some degree of financial stability.

An MBA graduate who cannot find a career-oriented job in business coming out of school can take a survival job and manage loan payments until such time as the job search effort is finally rewarded. That may not occur until the economy has righted itself to the degree that businesses are once again thinking about growth. The costs for higher education are being amplified by the lack of jobs available to newly minted and highly trained professionals.

TheHouse of Representatives has taken up the proposed Student Aid and Fiscal Act of Responsibility 2009 which will expand direct federal student lending and will hold interest rates at the current 3.4%, a figure which is set to double in 2012. More loans will be available and the application process will be simplified, according to the House Committee on Education and Labor. The goal for all of these bills is to reduce the debt factor in calculating the value of higher education. A student’s post-graduate experience should not be defined by a mountain of debt accrued in the education process.