Forgiven Debt Plan: Curb Your Enthusiasm

Forgiven Debt Plan: Curb Your Enthusiasm

Student loan program revisions

Student loan debt has been steadily rising for a number of years and has recently passed the $1 trillion mark, making it more than credit card debt. The issue has had attention all along, but there is more of a focus on it as recent graduates are having a hard time finding jobs that would enable them to repay those loans.

At the end of October, President Obama accelerated changes to the existing income-based repayment plans from going into effect in 2014 to next year. The plan would allow those with FFELP loans to consolidate those loans with their other direct federal loans, reducing their interest rate by as much as half a percent. It also reduces the maximum payment from 15 percent to 10 percent of a student’s discretionary income, with any remaining debt forgiven after 20 years rather than the current 25 years.

While the announcement got a lot of attention in the press, some people have questioned how many people it will help.

“The proposal’s emphasis is consistent with Sallie Mae’s current practices and mission,” says Martha Holler, Sallie Mae spokesperson. “While at first blush the proposal incentives appear to break new ground, in fact, they duplicate some features that our customers have enjoyed for nearly two decades.” 

“It’s not a huge game changer for people who are three or four years out of school,” says Patrick Kandianis, cofounder and chief revenue officer of Simple Tuition, which helps students and their families determine how to afford college. He believes the consolidation piece will be helpful to both borrowers, who will have their debt in one account, and college student services officers who might be advising those students, since it will make things easier to explain. However, he points out it is more of a “housekeeping” matter, since “it’s not a traditional consolidation; it’s an account with one biller.”

Experts agree the consolidation option will only aid a fraction of student borrowers since only “split-serviced” loans are eligible.

The president’s announcement was less interesting for the content than it was for presenting an opportunity to discuss the issue of student loan debt, says Mike Ryan, vice president of borrower services for American Student Assistance, a nonprofit that provides information about student loans.

While the announced changes are much more relevant to borrowers, Ryan points out it is an opportunity for campus leaders to evaluate the information provided to students and recent graduates through existing communication and outreach efforts. “The reality is, the understanding doesn’t come in until students have to start making payments,” Ryan says.


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