How Student Loan Borrowers Have Fared Under the Obama Administration
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UPDATED: Apr 18, 2013
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Student loan borrowers have seen better days.
The media is constantly talking about the Student Debt Crisis and how Generation Y has a snowball’s chance in hell of finding jobs come graduation.
Unlike common problems such as defense and energy that nearly all previous administrations have had to deal with, the current attention on college financing is unprecedented. A closer examination of the Obama Administration’s actions will shed light on how the millions of college-aged borrowers have fared over the past several years.
Taking the Good with the Bad
Andrew Schrage, co-owner of Money Crashers Personal Finance, told loans.org that while the Obama Administration probably had the best intentions for America’s student loan borrowers, in truth the nation has gotten a mixed bag of results.
“In 2011, by way of executive order, President Obama allowed graduates to cap their repayments at 10% of their discretionary income, two years earlier than that law was supposed to take effect,” said Schrage. “He also reduced the time-frame for when student loan debts will be forgiven from 25 years to 20 – and down to 10 years if the student chooses a career in public service. The administration also made it easier for students having both private and federal loans to consolidate them.”
However, not everything the Obama Administration has done has been in the best interests of potential borrowers.
Back in 2011 the Administration supported and approved the passing of legislation that made it more difficult for parents to obtain financing through the PLUS program. Additionally, the President’s current proposed budget would have federal student loans change from fixed to adjustable interest rates.
But the proposed budget isn’t all bad. If passed, it may help borrowers with subsidized Stafford student loans, which will be seeing an interest rate increase in July.
“If the budget passes, it would become easier for students to repay their subsidized Stafford loans at a more affordable rate,” said Schrage.
Perhaps more importantly, the Obama Administration altered how collection companies can be compensated for collections on defaulted college financing.
“It now no longer rewards collection companies for pursuing often unreasonable payments from student loan borrowers,” said Schrage.
Regardless, the Money Crashers CEO did point out that the Obama Administration has yet to allow borrowers with defaulted student loans to rehabilitate them with income-based payments. With the looming student loan debt crisis, this could prove to help turn the tide against the now trillion dollar bubble.
What’s more is that all of these changes pertain strictly to federal student loans. There have been virtually zero changes to private student loans. According to Schrage, private college financing is just as risky as ever and still lacks the protections of federal student loans.
One relatively recent upside, however, is the advent of real-time private student loan price comparisons. You can click here to see what interest rates are offered to you before ever agreeing to a loan.
Out of Sight and Out of Mind
While it is easy to point at the successes and failures of the Obama Administration’s actions, it is also important to see where the Administration has simply not addressed seemingly obvious problems; namely the rising cost of attending college.
According to CollegeBoard, tuition increases at two-year and four-year colleges have been rising at a rate that would be the hallmarks of a speculative bubble were they stock prices.
Consider California’s current situation. Some of their colleges have risen by almost 2,000 percent over the last 30 years. But the value of the dollar has only risen a measly 147 percent.
For all its social media proficiency, the Obama Administration has been muted when it comes to addressing these tuition increases; many of which prove a healthy profit to universities around the nation that obtain federal grants and income.
Even though the Obama Administration was praised for galvanizing the youth vote and being built on a campaign of hope and change, it certainly wasn’t the first or only administration to try to help student loan borrowers.
A Previous President’s Path
The Bush Administration, which, like the Obama Administration, was elected into power for two terms, passed into law the College Cost Reduction & Access Act in September of 2007. This act redirected taxpayer subsidies away from student loan companies and toward increased grant aid and improved benefits for student loan borrowers.
More importantly, the Bush Administration created the idea of Income Based Repayment (IBR). While the Student Debt Crisis only manifested itself during the Obama Administration, IBR had been available—yet not focused upon—long before President Obama’s historic election in 2008. Even though IBR was improved under the Obama Administration, it was by no means forged by their policymakers.
Even though the mistakes and errors of the Bush Administration are fresh in the minds of many Americans, at least it can be said that Bush era policymakers made some assistance available to indebted student loan borrowers.
Good Enough is Never Good Enough
While in the coming months there is likely to be political commentary that the Obama Administration “dropped the ball” on domestic counter-terrorism, the same allegations can be made that the rise of the student loan crisis came solely during the President’s first and second terms. However, such logic is as false as it is politically charged.
“The student debt crisis was not created overnight, and it would be a difficult argument to make that it’s the fault of the Obama Administration,” said Schrage. “While you may think the administration hasn’t done enough, it’s certainly made some positive strides.”
Considering that most people vote once every four years (if at all), many would argue that we should be satisfied with the Obama Administration’s partial successes and tentative focus on student loans. Unfortunately, demanding subpar actions only results in subpar outcomes.
The Obama Administration owes its very existence to the multitudes of young voters—most of whom have student loan debt. The President owes America’s young adults, who came out in droves to put him into power — twice. If history can be trusted though, then American voters (both indebted and not) should be prepared to realize that politicians always disappoint their voters and never deliver on all of their campaign promises.