$38 Billion Student Loan Experiment Changed the Lives of an American Generation

At some point in the near future, you’ll have probably have heard about the $38 billion student loan experiment. It’s an experiment that will change the lives of an entire generation, and it hasn’t even started yet! In this article, I’ll tell you everything you need to know about how this experiment will work and why the U.S government has launched it in the first place. Read on!

The Obama administration recently made an unprecedented move that will change the lives of millions of American college students and families by capping federal student loan interest rates at 3.86%. Although the initial cost to taxpayers was $6 billion, ultimately this program will help save Americans $62 billion on their loans over the next 10 years. This means that more students will be able to finish school without racking up crippling debts and more parents will be able to support their children as they pursue their education goals.

When President Obama took office in 2009, he had an ambitious plan to reform the student loan system and address rising college costs at the same time. Dubbed Pay as You Earn by the Department of Education, this new experimental student loan program was intended to help struggling graduates pay off their debt as quickly as possible while also incentivizing them to seek higher-paying jobs after graduation. Unfortunately, while Pay as You Earn met its initial goals, it has fallen short in the long run and may have actually helped drive the cost of college up even further in recent years.

Student-Loans

Outline

  • Student Debt Relief
  • American Dream
  • Affordable Care Act
  • Make America Great Again

$38 billion student loan experiment

In 2007, to relieve debt burdens on new graduates, Congress set up a special deal for those who’d taken out student loans. Payments would be capped at 10 percent of income and forgiven after 25 years—or in 10 years if you worked for a nonprofit or government agency. The program was available only to new borrowers. So about 1 million people took advantage of it over several years. Then things changed: Republicans gained seats in Congress and made cutting costs a priority, starting with student loans.

Also, Read U.N. Launches Fund to Foster Cheaper Loans, Green Development for Africa

Student Debt Relief

The Making of a $38 billion student loan experiment. The Obama administration ended an $8 billion private loan program for students in 2010 and substituted an improved direct loan program, promising a more customer-friendly experience and lower interest rates. As millions of Americans are still paying off their student loans, we wanted to know whether there has been any improvement since then. So we took a look at payments under both programs for students who graduated from college between 2004 and 2012, according to data provided by Ed Funds, which administers debt relief payments on behalf of two groups of lenders: U.S. Education Department borrowers (those who borrowed only through federal loans) and lender groupings that included private loans as well as federal ones.

American Dream

The American Dream refers to a set of ideals in which freedom includes economic prosperity and upward mobility. In terms of material wealth, it is often used to define a goal that all Americans should be able to attain by working hard. The American Dream was most commonly expressed during post-war America, where middle-class prosperity was widely seen as within reach for those who work hard enough to get there. That idea is still referenced today, though most will tell you that it’s been a while since we lived up to that ideal. So how did we get here?

Affordable Care Act

The Affordable Care Act, a.k.a. Obamacare, has had a profound impact on college students and their families in numerous ways: The implementation of new health insurance exchanges allowed more people to access affordable health care than ever before; subsidies that lowered premiums and expanded coverage helped millions more, and a crackdown on aggressive debt collection practices reduced bills to manageable levels for many people with student loans. In all, it’s estimated that changes made under Obamacare have saved borrowers $1 billion by allowing them to lower their monthly payments or pay off debts altogether, though those benefits are largely untapped. Experts say that’s because few people understand what’s actually possible under these new laws—and how to achieve these results.

Make America Great Again

During his successful 2016 presidential campaign, Trump came up with a solution to student debt. In fact, he called for an income-based repayment program that allows borrowers to make repayments of 12.5% of their discretionary income. For undergraduate students who borrowed $75,000 and have a starting salary of $40,000 per year ($3,333 per month), that would be $250 per month instead of their typical $1,000 monthly payment under standard repayment. This program also forgives outstanding debt after 15 years instead of 25 years under current law—and forgive it does: Under Obama’s proposed IBR plan, only about one-third of borrowers will have their loans forgiven after making payments for 25 years on time.

$38 Billion Student Loan

Source: Bloomberg Wealth

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