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The education system in the US is a one-way ticket to the hamster wheel of loans. We get into the system thinking it is our way of a more prosperous life. Little do we know the loans that make college and university possible for us, take away our freedom of choice. Once we graduate, we have to start worrying about repaying the education loans rather than thinking about shaping our lives the way we want. Forget Euro trips and countryside treks; the education loans will always be there to remind students of the challenging economic condition of the country.
What are we getting with the new Trump administration?
Trump’s new government is promising a slew of modifications that will change the way education loans work. One of the most recent education proposals calls for a replacement of the high-interest rates and repayment amounts with an even plan that will benefit all undergraduate borrowers. The new repayment plan will look forward to a flat rate that will cap repayment to a maximum of 12.5% of the borrower’s earnings. After a period of 15 years, the authorities will forgive the remaining loan amount.
This will apply to all undergrad loans taken out from federal agencies. Anyone will a graduate loan will have to pay the same interest rates and same percentage. However, they will pay up until 30 years.
The cons of the new plan
The current plan is more income-driven. It is the Revised Pay as You Earn plan that forgives undergrad debt after 20 years of repayment. If you have an advanced degree, you have to pay for 25 years. After which, the administration forgives the balance. This plan is more beneficial for the students gunning for an advanced degree. Their payments are flat 10% of their income. Under the new scheme, people with graduate degrees will have to pay for longer, and they will be paying larger monthly payments.
This is quite the “lousy” deal for grad students according to Ben Miller. The senior director for postsecondary education thinks this will cause more grad students to lean towards debt refinancing and student loan consolidation for accessing easier payment terms.
Another massive change will be the elimination of the Public Service Loan Forgiveness. This was a program to avoid all federal student debt after people with student loans made 120 qualifying monthly payments. George W. Bush introduced this in 2007. This has encouraged more college graduates to become social workers, public litigators, doctors in rural areas and public school, teachers. The elimination of this program will directly affect the working class of America, for the worse.
How is the Trump Government justifying the new plan?
"If you have an income-based loan repayment option, you don't need any Public Service Loan Forgiveness plan," says Jason Delisle. This resident fellow at the American Enterprise Institute also opines, "An income-based payment allows people to pay their dues to the government even with low-income jobs." More members from the conservative Institute think that the Public Service Loan Forgiveness was erroneous and expensive for the students of the US.
The new plan will allow the recipients of the Pell Grant to use their scholarships for three semesters instead of two. The students will be more likely to take a full load of classes throughout the year. This will help them earn their degrees faster and avoid the student loan buildup. The Trump administration has promised to increase the Pell funds by $16.3 billion over the next decade.
Loopholes in the Pell Plan directive
Even the new budget and planning will restrict the Pell scholarship at a flat $5920. The new plan will pull about $3.9 billion out of the current Pell’s plan reserves. The administration is now thinking of cutting the federal work-study funds by a staggering $487 million. This study fund helps students through college. A huge part of the “Skinny Budget” will sustain changes. TRIP and Gear Up programs will see about $200 million cuts. These programs help the underprivileged kids through middle school and high school in several states of the US.
The new budget sounds quite drastic, and it might cut some education programs short. This will cause many students to look for alternative education funds and debt relief solution.While most of them will still be able to access education loans from governmental institutions, their repayment terms will be more stringent.
There are two most common types of student loans: federal and private. Due to the different natures of the two loans, there are two distinct kinds of consolidations applicable for these loans. Let us see how
Consolidation of federal loans is quite easy. When you consolidate a federal loan, the government replaces the federal loan with a direct loan. You can consolidate your federal loan through the Department of Education for free. So, we very aware of companies that are asking for money to consolidate your federal student loans.
The new rate for the consolidation loan is usually the weighted average of your previous interest rates. The new repayment term can be between 10 to 30 years. This makes paying off your education loan much easier.
You can replace multiple small and medium student loans with a new private loan. In fact, you can even save money with your new low-interest rates.
Your job, education history, credit score, and income will determine the interest rate. Usually, a credit score in the mid-600s is ideal for a private loan consolidation program. Your rates can vary from 2% to 9% depending on all the factors mentioned this far.
Trump’s new plan may just be a “penny wise, pounds foolish” decision, says Zakiya Smith of Lumia Foundation. The new budget will deal a sharp blow to students pursuing their grads and undergrads in America. Thankfully, there are responsible debt management and debt refinancing companies that will not undergo any drastic changes in their policies during this period.