Obama’s Move To Help Students Is Not As Forgiving As It Seems

"If you’re a student loan-burdened recent college graduate putting the final touches on a note to President Obama, thanking him for his recent executive order on debt repayment, don’t get too excited," according to The New York Times' The Upshot blog.

"Mr. Obama formally widened the pool of eligible participants in the Pay as You Earn program (PAYE) and said it could save recent graduates hundreds of dollars every month, helping an additional five million people manage their student debt. It fulfills a promise — made in a chipper, animated advertisement posted to Mr. Obama’s YouTube channel in 2011 — that graduates would not have to make student loan repayments greater than 10 percent of their income.

But if you look at the numbers closely, PAYE saves you money only if you borrowed big and earn little.

The revised program caps monthly loan payments at 10 percent of discretionary income, defined as income exceeding 150 percent of the federal poverty level for a single person. Well-paid graduates and those working minimum-wage jobs will dedicate equal proportions of their income to paying off debt.

But does the 10 percent cap make that much of a difference? It looks like PAYE saves money only for those low-income borrowers who have incurred an unusually large federal debt — so much debt that the federal government agrees to forgive whatever you haven’t paid off after 20 years. That certainly helps, but it isn’t going to help a majority of college graduates."

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