Recent changes to student loan repayment program benefit high-income graduates, study says

The massive growth of student loans has provided opportunity for young individuals to access and reap the benefits of a college education. In parallel with the increasing costs of tuition and other educational expenses, the number of students acquiring student loans has constantly increased. While obtaining a student loan eases financial barriers to higher education, it is one of the reasons why a large number of college grads are saddled with high amounts of debt.

The fragile employment market brought on by the struggling economy has made it extremely hard for everyone, even for graduates to find a job. The adverse economic scenario faced by today’s generation has resulted in more people scouting for work in a very much smaller job market, making it more difficult for recent college graduates to keep up with their loan payments.
With the economic recession contributing to the increasing levels of bad loans, rising number of student loan defaults, and rapid growth of unemployment rates, the federal government is implementing changes to its income-based plan to help a large number of low-income student borrowers especially those who are burdened with a comparatively high debt meet their payments on time. A new study reveals that 1 in 6 student loan borrowers are in default. The idea, indeed, was to help ease the load of those who are facing a dismal job market and struggling to make ends meet.

Policy Assessment

However, a recent report released by the New American Foundation, a nonprofit, non partisan policy organization, suggests the new repayment policy will provide only subsidiary relief for low-income borrowers with high default risks.

Jason Delisle, a co-author of the new study and director of the Federal Education Budget Project at the New American Foundation, concluded that the reforms would only provide limited help for low-income borrowers. Instead, it would bring huge benefits to middle- and high-income borrowers, specifically those planning to pursue a graduate degree.

Borrowers belonging to the low-income category–those who have an income of $25 000 or less–will see a reduction of $5 to $20 in their monthly payments. On the other hand, borrowers with higher incomes and debt loads will greatly benefit from this new policy since they will see a significant portion of their loans forgiven after 20 years of payments.

According to the report, at least one financial planning firm is informing law school students that they could write off as much as $100 000 in student debt under the new program.

The report further says that if left unchanged, the reforms is set to provide huge financial windfalls to people who, far from being in need, are among the most financially well-off graduates in today’s job market. It has also been concluded that the new repayment plan is actually an incompetent use of federal funds since it imparts a greater portion of its benefits to high-income groups.

Thus, the institute unveiled a proposal that instead of forgiving colossal undergraduate school debts, particularly those of borrowers belonging to the high-income category, the federal government should focus all of their efforts on making undergraduate education highly accessible for students.