President Obama’s recent proposals, designed to alleviate student loan burdens and rate colleges, have led to a healthy debate on how to measure colleges based on a scoring system, and how that will impact their ability to offer financial aid to students.
The new Pay As You Earn Repayment Plan that started December 2012, offers the most promising means for alleviating the debt burden of former, current and incoming students who are suffering a financial hardship. This aspect is especially helpful considering the US unemployment rate has remained around 7%. While this is a modest improvement over early 2012, the growth of new jobs has been slow, therefore loan repayment may still be challenging for both job seekers and parents who are hamstrung by shrunken college or retirement savings.
Obama’s proposal includes a measure to have the Department of Education contact student-debt holders to ensure they are aware of their repayment options. According to a US News and World Report article by Isaac Bowers, less than 7% of borrowers are enrolled in income-driven repayment plans. There is a clear opportunity to reduce the occurrence of loan default, which should further reduce the potential credit risk graduates may face as a result.
The portion of the proposal that contains a rating system for colleges has yet to be reviewed by Congress. The rating system will be developed as early as 2015, implemented thereafter, then financial aid will be tied to results as early as 2018.