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What's the Real Impact of the President's Student Loan Plan?

White House officials announced a new plan they claim will significantly lower student loan payments.  In a speech yesterday at the University of Colorado, President Obama told students, “Americans could see their payments go down by hundreds of dollars a month.”  Sounds great – but like most things with this administration, the facts reveal that the average student loan holder is unlikely to see any real impact from this plan.

The president’s plan is two-fold, dealing with both a loan consolidation incentive and a reduction above and beyond the existing Income-Based Repayment Program.

Students who currently hold both a Family Federal Education Loan (FFEL) and a Direct Loan can receive up to a .5% reduction in their interest rates if they consolidate their debt into the Direct Loan program. Of the nation’s roughly 36 million student loan holders, only about 16% of loan holders can take advantage of this consolidation incentive.

What kind of savings can those eligible loan holders expect? According to an analysis by The Atlantic, it won't amount to much:

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, 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.

The second part of the president’s plan is the administration’s attempt to change the rules of an existing program. Under current law, student loan holders can limit their monthly repayments to 15% of their discretionary income, and the federal government will forgive any outstanding loan balance after 25 years.

The president’s new plan will cap monthly payments at 10% and forgive the loan balance after 20 years.  However, this portion of the plan is only applicable to students who took out a loan in 2008 or later and will be taking out new loans in 2012. According to the White House’s own materials, only 1.6 million students will benefit from this program next year – that’s just 4% of the nation’s student loan holders.

Even the Education Finance Council, an association dedicated to making college more affordable, recognizes the president’s plan won’t have a much effect on student debt or jobs. “President Obama’s proposal, available to a limited group of students for a limited amount of time, does not address the real student loan problem: rising tuition and the lack of well-paying jobs,” the group said in a statement.

The president promised hope and change. Unfortunately, he continues to offer little more than false hope – and it appears that’s never going to change. It’s time for the president to get off the campaign trail and work with Republicans to enact commonsense solutions that will help students and put Americans back to work.

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