BY ANDY LOCKE & MICHAEL STEFANELLI, SPECIAL TO THE COLLEGIAN
Twenty-one thousand six hundred fourteen dollars – that’s the amount of debt facing the average University of Massachusetts Amherst graduate of 2008, according to the U.S. Department of Education. It’s almost identical to the national average of $20,200. This student loan debt has many students and recent graduates feeling buried alive.
A new plan from the Obama administration could offer relief to student borrowers – including the 66 percent of UMass students who graduated with debt in 2008, the most recent year for which data is available. But this proposal faces stiff opposition from banking lobbies, who are spending millions of dollars to defeat it.
The plan, part of the White House’s 2010 budget proposal, has three goals: to lower the required monthly payments for student loans from 15 to 10 percent of discretionary income; to lower the maximum repayment period from 25 to 20 years for most people, and from 25 to 10 years for people entering public service; and to shift billions of dollars away from federally subsidized student loans issued through private lenders and into need-based grants and scholarships like the Pell Grant.
Andy Korenowsky, a loan counselor at Hampshire College, is guardedly optimistic about the administration’s plan.
“[It’s] they’re only proposals at this time,” he said, “and undoubtedly [there will] be amendments to these proposals by the time we receive final word.”
He points out that the proposed changes could definitely benefit students in the long run.
“Paying what one can afford for a maximum of 20 years is better than paying what one can afford for 25 years,” Korenowsky said. “Lower monthly payments may prevent some students from defaulting on their loans… [while] increased federal grant funds will benefit students with the most financial need.”
It’s important to note that these changes would only apply to federally subsidized student loans. These loans – issued through private lenders such as Sallie Mae or Chase Bank – are financially supported by the federal government. Currently, Korenowsky said, federal education loans provide the best loan options for college students and parents.
“Federal loans have fixed rates of interest, several repayment plan options, future payment postponement possibilities, and payment forgiveness programs,” he said.
Private student loans are issued through the same lenders but without government backing. Korenowsky says students should borrow private loans as a last resort.
Under Obama’s proposal, academic institutions could join the Federal Direct-Lending program. UMass has been a part of this program for many years already. This means that if the plan were to pass, it would not affect the way that the school provides services, said UMass spokesman Ed Blaguszewski.
“Making a UMass Amherst education accessible is a fundamental value of the University,” Blaguszewski said in an e-mail interview. “The direct-lending program works well for our students and parents.”
UMass has worked hard to ensure that its education remains accessible to families of all income levels. According to Blaguszewski, UMass has kept student charges for tuition and fees at or below the rate of inflation since the 2004-2005 school year. Funding for need-based financial aid is now $31.1 million, an increase of $11 million in the last five years.
Blaguszewski commented that the biggest challenge in delivering financial aid to students is the paperwork requirements established by the U.S Department of Education.
“The staff here at UMass works hard to manage and effectively serve the students and their families,” he said.
Under the Obama administration’s plan, private lenders would be cut out from the loan process entirely. Instead, loans would be issued to students straight from the federal government, theoretically lowering costs and interest rates. It would also shift the focus of student aid from loans to grants. Opponents to the plan cite potential job losses in the student lending industry as a drawback.
Chris Coiro, a UMass alum who graduated in 2005, worries that a lack of competition will hurt students financially.
“Competition among lenders will always benefit the student,” he said.
Competition for students’ business among private organizations as well as state, local, and federal government lending programs is good for people like him, who are paying off thousands in student loan debt, he added.
Coiro isn’t alone in his view that the current system of student lending is more beneficial to students than the proposed budget plan would be. Other opponents view the plan as a federal takeover, similar to the Wall Street bailouts which occurred last year, or the health care bill which is still fighting its way through Congress. They are citing the roughly 35,000 people who are employed by student lending companies, and wondering how many jobs would be lost if the proposal goes through.
Korenowsky is also worried by the possible removal of private companies from the student loan system.
“One of my concerns about this possibility is that the customer service the program would provide to borrowers as well as colleges will become one of lesser quality,” he said. “The confusion about repayment plans or forgiveness programs may well continue or increase if the program’s staff is not enlarged and well trained.”
Some view this bill as a more effective way to monitor and regulate interest rates on student loans. The interest rates on federally subsidized and unsubsidized loans were once adjusted on an annual basis, but have been set at a fixed rate since July 2006.
“For this year, federal subsidized student loans have a fixed rate of 5.6 percent, unsubsidized loans have a fixed rate of 6.8 percent,” said Korenowsky. “Parent loans have fixed rates of 7.9 percent or 8.5 percent, depending on the loan program. The fixed interest rates are too high.”
This proposal – for which the Obama administration once had high hopes of being passed – is now being threatened by a lack of bipartisan support and an army of lobbyists. The student lending business is a lucrative one, giving out $95 billion in loans during the 2008-2009 school year according to The New York Times.
Of that 95 billion, Sallie Mae, the nation’s biggest student lender,originated $22 billion. If the Obama administration’s plan goes through, Sallie Mae would be looking at a significant drop in business. The company has spent over $3.5 million lobbying against the plan, according to The Times.
Students who have already acquired mountains of student loan debt – whether federal or private – are still frustrated.
“The worst part is that I don’t feel like I have any power over it,” says Taliesin Nyala, recent graduate from Hampshire College, about her student loan debt.
She isn’t alone.
Across the country, hundreds of thousands of students and graduates are struggling with more debt than ever before. Coupled with high unemployment and rising housing costs, the added weight of debt from student loans and other sources has many recent graduates feeling powerless.
“I felt like it was a lot of paperwork and a lot of red tape, and felt like I didn’t have much control over the whole process,” said Coiro. Regardless of any frustrations “most students looking for education loans are going to be pretty motivated to take out the money they need with whatever is available.”
Emma Lifvergren, a senior at UMass, agreed. Though she took out fewer loans than the average UMass student, her debt was still a major factor in her parents’ decision to sell their house sooner rather than later.
“My plans were a large motivating factor in my parent’s decision to downsize,” Lifvergren said.
In her opinion, a focus on grants rather than loans and the adjustment of interest rates by the federal government could help keep the costs of an education under control.
Even if the Obama administration’s proposals are put into action, it will be difficult to measure the long-term costs or benefits of the plan. As an example, consider the Public Service Forgiveness program – instituted by the federal government in 2007 – which Korenowsky says is “similar” to certain elements of the administration’s proposal.
“No one will benefit from this forgiveness program until 2017, 10 years after its start in 2007,” he said.
For both the Public Service Forgiveness program and the Obama administration’s plan, Korenowsky – and many like him – will be watching Washington closely, eager “to see how all of this plays out.”