Overhaul Student Loans? Not So Fast.
In an effort to recharge his voting base (doesn’t that hope and change stuff seem so long ago?) and perhaps appeal to one of the most vocalized concerns of the Occupy movement, this week President Obama rolled out plans for an executive order that would ease the burden for paying back student loans. Yippee, right? Student loans have grown a whopping 511 percent since 1999, and they’re a major component in the skepticism that’s been brewing about whether higher education is actually worth it. President Obama says his plans — which would help borrowers consolidate loans, limit their payments to 10% of their income, and forgive debt after 20 years — would save people hundreds in payments, significantly lightening their loads. Hell yeah!
Not so fast, says The Atlantic’s Daniel Indiviglio, who did the math and found that on average, the executive order would equate to between $4 to $8 a month in savings for the typical borrower. Booo. Here’s the aforementioned math:
For the average borrower, the impact would be small. In 2011, Bachelor’s degree recipients graduating with debt had an average balance of $27,204, according to an analysis done by finaid.org, based on Department of Education data. That average has ballooned from just $17,646 over the past decade.
Using these values as the high and low bounds of average student debt over the last ten years, the monthly savings for the average student loan borrower would be between $4.50 and $7.75 per month. Clearly, this isn’t going to save the economy. While borrowers with bigger balances would save more, this is the average. And even someone with $100,000 in loans would only cut their monthly payments by $28.50.
Indiviglio says that a fundamental overhaul is needed in the way student loans are structured in order for real change to be made. And in this Congress, that’s not really something we can hope for. But in the meantime, let’s focus on the positive. What will you do with your extra $8 a month?