Obama's 'Pay As You Earn' plan seeks to alleviate student debt
The plan would cap monthly loan repayments at 10 percent of monthly income.
Dec. 02, 2011
Seniors in 2010 who took out student loans to finance their education averaged $25,250 in debt upon graduation, according to a report from the Institute for College Access & Success’ Project on Student Debt.
To combat the student loan debt issue facing college-educated Americans, President Barack Obama created a plan to assist students: the “Pay As You Earn" plan, announced Oct. 26.
According to a White House news release, 1.6 million people will be eligible for the plan, which will cap monthly government-backed student loan payments at 10 percent of students' current incomes.
This new cap, previously set at 15 percent, will affect current college students and recent graduates. In addition, January will mark the start of a loan consolidation and interest rate reduction plan to 6 million people with student loan debt.
This initiative to assist students comes in response to rising student inability to repay loans in a sluggish economy. But it does not apply to private student loans that might come with fees and might not have fixed interest rates.
MU students experienced a 5.8 percent increase in tuition and fees this year from the 2010-11 year, leaving in-state tuition at $8,928 and out-of-state at $20,870. According to the 2012 budget report, this fee increase is a response to dwindling state support for the UM System. In the report, a graph detailing state support and inflation shows MU requires $332 million to operate and received only $179 million from the state for the 2011-12 year, demanding a tuition hike to compensate for state funds.
Freshman Brady Finn said he struggles with the expense of out-of-state tuition. He has seven siblings and his parents care for three of his cousins as well. Finn said he was drawn to MU for its journalism program and hopes to work in sports broadcasting after graduation.
“We need like ‘Extreme Makeover: College Edition’ where they give us all scholarships,” he said. “(My parents) have been really good working on that with each other. They have bank accounts set up for all of us. I see it as, we took in three cousins and did something good, so obviously that’s going to work itself out and something good is going to happen to us. Maybe it’s not going to be with helping us pay for college, maybe it’ll be with us all getting jobs to help pay back the loans. But some way or another, it’s all going to come full circle.”
Occupystudentdebt.com, a blog created for college students and graduates to post about struggles with loans and the emotional stress they cause, features this message on its sidebar:
“We were told to work hard and stay in school, and that it would pay off. We are not lazy. We are not entitled. We are drowning in debt with few means of escape. We would give anything to pay our debt, but we are un(der)employed due to the jobs crisis and lack of consumer protections and refinancing rights make things extremely difficult. The student loan bubble may not burst with a bang, but it is slowly suffocating us.”
The website tells stories of insurmountable debt caused by loans taken on to finance college education. Many posters describe owing more than $100,000 without job prospects in their field of study on the horizon. Others explain the challenge interest rates pose as they meet minimum monthly payments but only make a small dent on their overall debt. Several express the concern that the debt will remain with them to the grave.
Finn said he plans on taking the necessary steps to establish residency in Missouri to get in-state tuition next year. He said he plans to transfer his job at The Home Depot to the Columbia branch to fulfill part of the residency requirements.
“I’m going to stay here over the summer to get in-state tuition to knock down on that a little bit, just to try and lessen the debt,” he said. “It’s always going to be there lingering in the back of my mind, whether it’s a big number or small number. I’m just going to have to use my education and make the most of it.”
MU spokesman Christian Basi said 83 percent of those enrolled receive some sort of financial aid and some students receive multiple forms of financial aid. In addition, he said about 3.5 percent of students received federal work study awards.
He said student scholarships based on tuition increase when tuition rises, keeping the two proportionate.
Occupy COMO participant Paul Allaire said he believes there is something fundamentally wrong with the student loan process. He said he knows a former MU student struggling with paying back student loans.
“I look at all sides of everything," Allaire said. "His costs should have never been that high to begin with. They guarantee and rubber-stamped something that he was going to fail at."
Finn said he applied for multiple scholarships through organizations outside MU, but did not receive any. He said he feels pressure to do his best in school because his parents are supportive and try not to concern him with finances, but he worries about job prospects in sports broadcasting after he graduates.
“I think about what if I end up working at Walmart, and I’m underemployed, and I haven’t put my major to what I can put it to and get the right job,” he said. “But with sports broadcasting, I know I’m not going to start right away with my own radio show on ESPN. I know I’m going to have to start low and work my way up. I need to get my feet on the ground and get going. It’ll take a while.”
Allaire said he is also concerned about high tuition and costs associated with attending college, leaving students with few payment options.
“It’s ridiculous,” he said. “It just seems to me that’s a big moneymaking business over there. Then they take everybody’s tax money and put it in. The ridiculous amount students are paying doesn’t seem to cover what they’re spending.”
Allaire said the benefit of a college education is questionable today because high-paying job prospects are scarce for college graduates.
“I know that even for low-paying jobs right now, it’s not very good,” he said. “Anybody that wants to work can work. But whether or not they can work in their field for a meaningful salary, that’s a good question.”