Obama proposes cap on student loan payments
By Iris Chen
Feb. 2, 2010 2:55 a.m.
President Barack Obama proposed a cap on student loan payments for college students who cannot afford their education in the midst of the economic crisis.
In his State of the Union address on Wednesday, Obama recommended an increase in Pell Grants and a $10,000 tax credit for families for four years of college. As a result, college graduates would only have to pay 10 percent of their income on student loans.
“Students can pay back their loans over time as a percentage of their income,” said Michael Dukakis, professor of public policy at UCLA and former Massachusetts governor.
He added that as students pay back their loans, the money will go in a revolving fund that will be used to continue lending money to other students for student fees.
Andrew Kreitz, former chair of Bruin Republicans, said the capping on student loans would have a very negative effect in the long run, and private lending businesses would collapse.
“In terms of helping our economy, this is going to drive people away from lending … because it’s such a high risk. It’s dangerous for (private businesses) to make student loans,” Kreitz said.
Obama’s proposal guarantees that all debt will be forgiven after 20 years.
If students choose to work in public service, such as for the government or a nonprofit organization, their debt will be removed after 10 years.
“We would welcome anything that would make the University of California more accessible to students and make it easier for them to complete their studies and without debt after they graduate,” said Steve Montiel, spokesman for the UC Office of the President.
Obama’s proposal complements the Student Aid and Fiscal Responsibility Act, which is currently sitting in the Senate.
Because the SAFRA will increase Pell Grants and channel more money to community colleges and other educational programs, it would provide more immediate assistance to students.
In contrast, Obama’s plan to cap student loan payments will have a more long-term effect, said Jani Wang, a fourth-year business economics student.
Wang said she supports the plan to cap student loans, especially after the 32 percent fee increase passed in November.
“Since the tuition is going up, students like me think we will try to graduate earlier,” Wang said.
She said she laments this approach toward education, because students are offered more opportunities in school.
Ronald Johnson, director of financial aid at UCLA recognized this problem.
“There are a number of students who do not even attempt college because they’re very fearful the amount of debt they’re going to incur,” Johnson said.
He said the plan will help to minimize that type of anxiety and allow students to become contributors to the economy, which would be an aid to the current economic situation in the long run.
However, Patricia Shu, a first-year pre-business economics student, expressed her concern with the repayment system based on income.
“It’s unfair because those that are more successful would have to carry the burden of those who end up with lower-paying jobs,” Shu said.
Others expressed concerns about the proposal’s effect on the nation as a whole.
“This would ultimately damage our economy in the future, as banks will lose their funds due to students choosing Obama’s proposed system, and would have insufficient funds to give out loans to the general public,” said Jack Chan, a first-year mechanical engineering student.
Kreitz also noted the effect on morale of those who take out student loans.
“If all of a sudden, student loans are forgiven … you are encouraging people to avoid paying back their loans,” he said.
While Johnson said he hopes Congress can reduce interest on loans “as a means to providing more flexibility and access to students,” he also expressed the need for students to research other repayment plans to choose what is best for them.
“Students should be aware that there are a number of other types of repayment plans that do currently exist,” Johnson said.
“And if (students) do take on one of the programs, it may still extend the overall amount of money (they) need to pay back,” he said.
Johnson said he agrees with the president’s proposal.
“His platform since the beginning is that he supports education, and he feels that education is one of the best ways to ensure an improved economy,” Johnson said. “And I always have felt that the education is our best homeland defense.”
