The entire world is a twitter about the
endorsement of Elizabeth Warren’s bill by President Obama and the changes that
are being made to the Pay as You earn program. But the question is that despite
all these endorsements and changes, will either of these actions help reduce
the student’s financial woes? What s Elizabeth Warren’s bill missing? Well, it
seems that this bill has no chance of passing within the House as it is. The
Republicans won’t approve a bill that is paid for with the tax of a
millionaire. If more of a push was made for enhancing financial education on
the repayment options of student loan debt, they could afford to refinance
their older federal student loans.
If default rates weren’t near 15%, there
would certainly be more revenue coming from student loans that were paid back
on time. Experts see that for the large part, defaults are unnecessary. Federal
student loans usually come with more options for repayment than with any other
type of loan. While you can’t take a year off from repaying your mortgage loan,
you can take a year off from student loan repayment when you go through any
financial problem.
Defaults are gradually getting easier to
remove since the July 1st change that will allow for payment to get
out of default depending on the income of the borrower. A woman who was in
remission from cancer, got her loans out of default because a student loan
servicer instituted this program ahead of time. So much can be done by Obama
about debt repayment issues. Obama has been kind enough to take the decision of
incentivizing all those student loan servicers who keep default rates low and
this will inevitably mean that they have to educate the borrowers more on the
student loan debt repayment options. Honestly, the biggest incentive should be
loss of government contracts if they’re not properly informing the borrowers
after their first late payment. They should help them with an alternative
repayment plan and also give them information on payment breaks.
In the educational efforts, colleges should
also be incentivized in order to provide more financial education than an
online form for exit counseling when students graduate with federal student
loans. Obama supports students to go through a 1hour budgeting session with a
peer counselor at a student money management school that offers such a service.
Now the sad news is that the new expansion
of the Pay as You Earn program to reduce income-related repayments for 5
million borrowers, probably falls on ears that aren’t listening to Obama’s
announcement. In addition to that, the income related programs aren’t catered
to meet the needs of everybody. As there are different ways to repay student
loans, there are some people who can achieve an extended repayment plan by
consolidating their loans.
Financial education is very important. After
all, the changes that are made to the Pay as You Earn program does help the
borrowers but they won’t get any benefit until 2015 December. Hence, there’s
lot of time for even more defaults and missed payments without financial
education.