Blogs:

There is no clear consensus on how interest rates on student loans will be prevented from doubling next month with the Congress still in a limbo over this issue. In the meanwhile, a few small bore measures are being outlined by President Obama in order to provide the much needed relief to our debt straddled college students.

A memorandum was issued to the Internal Revenue Service and to our Education Department recently outlining steps to make everyone aware of the student loan repayment system based on income. Details about how this loan limits to fifteen per cent of their discretionary income, the monthly payments of borrowers will be made public. For some, this limit will fall to ten per cent towards the end of this year.

Arne Duncan, our education secretary said that potentially, there are thousands maybe millions of students who are deserving and eligible for this loan. He said that obviously we are not effectively reaching the massive marketplace out there.

Only 700,000 out of the 30 million students repaying loans are aware of and use the income based repayment according to administration officials. They say the process of applying for this loan is cumbersome with piles of paperwork spread across federal agencies and departments.

This scenario will soon change with the revamping of application process online by the administration. Borrowers can now easily feed information to the IRS and to the Education Department simultaneously and avoid submitting forms to both departments separately.

In order to help students take informed financial decisions, new mobile phone and online applications will be called for by the memorandum. Students will now be able to understand the extent of their loan and the impact it could have on their lives.

Many in the field of higher education including universities and colleges are called upon by the administration officials to explain various options available to them that could be used to educate their students better. This includes spreading awareness about the income based repayment system.

In a bid to equip institutions with enough knowledge on how to talk to students about their student loan debt, a “model exit counselling” will be established by the education department next year.
If by July 1st however, if the student loan interest rates go very high, all these measures will not have any significant impact.

While both Democrats and Republicans want to maintain the subsidized annual loan rate at 3.4 per cent, they are unable to work out a solution to manage the $6 billion deficit this would result to the federal treasury.

Various measures have been offered by the GOP. Some of the suggestions include reducing Medicaid reimbursements offered to states and getting federal workers to contribute more towards their pension. There are suggestions from the Democratic camp to raise taxes on the affluent Americans.

As usual, the blame game is on and each side continues to rally at the other for the delay. Mitch McConnell who is a Senate Minority Leader called the lack of compromise and the approach by White House “inexcusable”.