Obama proposes earlier student loan relief

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President Barack Obama proposed Thursday to move up the start date of Federal student loan relief from 2014 to 2012, a change that could affect several million borrowers.

The Health Care and Education Reconciliation Act of 2010 made provisions for federal student loan repayments on loans taken out after July 22, 2014. Loans taken out after this date will have income-based payments based on 10 percent of the borrower’s discretionary income and will be forgiven after 20 years.

Obama announced plans to move up the date to include loans taken out in 2012. His plan would also make it easier to consolidate different federal student loans for a slightly lower interest rate.

Since monthly payments are lower, it will take more time to repay the loan. This could increase the overall amount of interest paid on the loan.

Students could also owe taxes on the forgiven loans if more than $600 is forgiven. A bill that would have eliminated this tax was introduced to the 111th session of Congress, from January 2009 until January 2011, but failed to move forward before a new session began.

Lora Reinholz, instructor of finance in the College of Business Administration, said she is concerned as to how students will react to this change. She said that students may take out too much money in loans and assume it will just be forgiven.

There are many different definitions of discretionary income, which worries her.

“The definition they use will be significant,” Reinholz said.

She said students also need to look at their future income when they start borrowing money.

“Do not borrow more than you plan on making in your first year,” Reinholz said. “In the end, someone is going to have to pay for it.”

In her financial planning class, students make a financial plan for themselves. Reinholz said many students in her classes have taken out significant amounts of money in loans to pay for Marquette tuition. She said some students have upwards of $60,000 in debt.

These loans can hinder life decisions such as purchasing a home, getting married and having children, Reinholz said.

Christian Schebesta, a senior in the College of Communication, said he thinks this plan will cause students to take out more in loans than they need and take advantage of the forgiveness of loans.

Elise Gottsacker, a senior in the College of Education, agreed.

“The natural instinct of students will be to take out more loans,” Gottsacker said. She said most students will only think about how their loans will be forgiven and forget about monthly payments.

Michal Gawlik, a junior in the College of Engineering, said he thinks the changes will encourage students to pursue an education.

“(The changes) will provide security for going to school by helping to mitigate the financial burden of education,” Gawlik said.

Other government agencies are also working to help students make loan decisions.

The Consumer Financial Protection Bureau and the Department of Education started the “Know Before You Owe” student loan project in May. The one-page document was drafted by the agencies to help students understand the type and amount of financial aid they qualify for and to allow them to compare college offers.

The student loan form aims to help students determine how much it would truly cost each year to attend a selected college, including tuition, housing, books and transportation. The form also includes information on grants, scholarships and work-study options. It provides not only the total loan amount borrowed but also the total estimated monthly payment.

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