Easing Student Loan Burdens On The Frontburner For Obama, Senate

David Greene talks to financial aid expert Mark Kantrowitz about proposals to mitigate student loan debt from the White House and in the Senate. Kantrowitz is the founder of the website finaid.org.

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DAVID GREENE, HOST:

All right, let's bring another voice in here. It's Mark Kantrowitz. He is founder of the finaid.org website that provides information on how to pay for college. He's now publisher of edvisors.com, which markets online courses and college loans. Mark, welcome back to the program.

MARK KANTROWITZ: Thank you for having me.

GREENE: So you were just listening with me to that piece from Scott Horsley. He called these proposals from the president modest. How would you describe them?

KANTROWITZ: They are a safety net for students who are having difficulty paying their loans - students whose debt is out of sync with their income, who maybe borrowed too much due to insufficient grants. And they are going to help relatively small numbers of students to afford their loan payments.

GREENE: Relatively small number of students - give me an idea of how many students are facing problems like the ones we just heard about and how many might get some relief here.

KANTROWITZ: Well, in the direct loan program a total of about 2.2 million students are in some repayment plan that's based on the student's income.

GREENE: Let's talk about how this safety net, as you describe it, would work here. This program that the President spoke about in an executive order would cap student loan payments at 10 percent of their income. The President is basically taking a program that exists and making it available to more borrowers. Has this program worked in the past?

KANTROWITZ: It bases the monthly payment on a percentage of the borrower's discretionary income as opposed to the amount they owe. It's ideally suited for people who are pursuing occupations that don't pay as much. For example, if someone wants to become a public defender, going to law school and taking on, say, $120,000 in student loan debt but the starting salary of a public defender is only $40,000, that's a completely unsustainable debt to income ratio. There's no way that that person could afford to repay their loans on that low salary. So it reduces the monthly payments to an affordable level based on the individual's income. And after 10 years of full-time employment in a public service field, the remaining debt will be forgiven.

GREENE: So you mentioned that 2.2 million people out there are direct paying these loans, right?

KANTROWITZ: Yes.

GREENE: And some of the voices we just heard, I mean, a young woman who's talking about delaying her marriage - is she someone who, in theory, might be able to cap her loan payments at a lower number and make some better decisions that she's happier with in her life?

KANTROWITZ: It depends. It depends if she has federal education loans or if she has a mix of federal and private student loans. The federal education loans are eligible for "Pay As You Earn" repayment or Income-Based repayment and the Public Service Loan Forgiveness program. The private student loans are not.

GREENE: So that's the big question that people should be thinking about as they hear about these new proposals - what kinds of loans do they have?

KANTROWITZ: Absolutely. Private student loans, parent education loans are not eligible for "Pay As You Earn" repayment. Federal student loans are.

GREENE: We also heard about a law that the President is calling on Congress to pass that would allow borrowers to renegotiate at lower interest rates. Scott Horsley mentioned it's not likely to pass Congress. Why is that?

KANTROWITZ: This proposal has support from the Democrats. It does not have support from the Republicans. And it is perhaps being introduced, knowing full well that it won't pass, to try to distinguish between Democratic and Republican members of Congress ahead of the midterm elections.

GREENE: What sorts of changes are out there - proposals that you think would, you know, putting politics aside, do some real good?

KANTROWITZ: One piece of legislation that I think could potentially pass is legislation to better educate students about their loans before they incur the debt. Currently, students who drop out of college are four times more likely to default on their federal student loans than students who graduate. They account for almost two-thirds of the defaults. Perhaps part of the reason for this is that students who graduate go to through exit counseling where they learn about the repayment options, whereas students who drop out don't necessarily get exit counseling. If this counseling were improved and made available to students sooner, it might contribute to a lower default rate.

GREENE: Mark, thanks so much for talking to us. As always, we appreciate it.

KANTROWITZ: You're welcome.

GREENE: Mark Kantrowitz is the publisher of edvisors.com and an expert on paying for college education. You're listening to MORNING EDITION from NPR News.

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