Financing College – Who Knew?

While the Affordable Care Act (ACA), popularly referred to as Obamacare, is deplored by many people for its health care reforms, an obscure part of the law is helping to solve the student debt crisis. Before Obamacare the federal government subsidized private banks that would then issue student loans with federal guarantees.

Didn’t know that? Read on – there is much more most of us didn’t know. This short blog piece is based entirely on a 7-page article in the November 30-December 7, 2015 issue of TIME magazine, by Haley Sweetland Edwards. Wherever quotation marks are used, the quote is from the TIME article.

First, in the ACA the federal student loan subsidy/guarantee was eliminated and the Department of Education became the direct lender.

In a key program called Income Driven Repayment (IDR), there are plans put in place by Presidents Clinton, G. W. Bush, and Obama that allow federal loan borrowers to cap their monthly payments at 15% of discretionary income for a maximum of 25 years, after which the balance is written off; gone.

The second key program is called Public Service Loan Forgiveness (PSLF). “It’s simple: if you’re dilligently making payments in one of those IDR plans and you’re working full time in for either the government or a registered nonprofit – from a local food bank to a private university – you can sign up to have any remaining balance on your loans forgiven after just 10 years.”

As always, there are differing opinions about the fairness and effectiveness of these programs, including: 1) the lack of a cap on how much graduate students can borrow, 2) not enough attention paid to the rising tuition rates and the lack of incentive for colleges and universities to keep tuition low, 3) the lack of attention being paid to increasing tuition as the root cause of increasing student debt, 4) most generous benefits go to the most privileged students, and 5) the apparent lack of attention the programs have attracted from students.

The article includes a chart exhibiting the amounts of loans to be forgiven based on cost of living, salary, and whether the job is with a nonprofit.

Another chart provides a guide displaying college costs and sources of grants, scholarships, and loans.

The article ends with a quote from a counselor and mother of two, who says “…she’s doing her part. She tells colleagues and friends about the programs all the time. ‘They usually don’t believe me…. They think it’s too good to be true.’”

I have barely scratched the surface of the information in this article and recommend it highly.

The conclusion of the article: “With reporting by Alex Altman, Zeke J. Miller and Mark Thompson / WASHINGTON


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