Federal Student Loans Program – Benefits and Shortcomings

Written by B.Denesia   // November 12, 2011   // 3 Comments

Statement on Hight EducationOfficial White House Photo by Chuck Kennedy

Students from Berkeley to Harvard are fed up with the corporatization of higher education.  The Occupy movement is gaining more strength as it moves toward affecting a change, or some sort of economic justice.

Now more than ever people need a certain level of higher education for the very competitive job market.  With less jobs and more competition, young and old are looking to gather the necessary skills to become more marketable.  With a higher education comes the need for student loans.  The current economic climate has put graduates in a position where they are fighting for jobs, with the payment for their loans quick to follow.  Will the new program that the Obama administration rolled out help?

A brief synopsis of student loans gives an idea of what direction the government has gone to make sure these loans are paid back.  In 1978 after it was found that doctors were including their student loan debt in bankruptcy, the Bankruptcy Reform Act made it so you could not discharge the loan for at least 5 years.  Then in 1990 the non-discharge period was pushed to 7 years.  Once 1998 came around Congress took away the opportunity to discharge your student loan debt in a bankruptcy.  And finally in 2005 the bankruptcy laws were amended to give private student loan lenders the protection of not having student loans included in a bankruptcy.

The average student loan debt Americans hold is steadily increasing. Without the ability to include your student loan in a bankruptcy, and less jobs post education has prompted the Obama administration to come out with a new plan that would consolidate government loans under one Federal loan with lower interest.   The new plan has been termed Special Direct Consolidation Loans.  According to information from the Wall Street Journal and the New York Times Obama’s plan would:

  •  Allow an estimated 5.8 million people to consolidate both direct government student loans and government-backed private loans into one government loan
  • Reduce the overall interest rate by approximately .25%  to  .5%
  • Set up a new income based repayment plan

Some borrowers however will not benefit from the new income based repayment plan.  The plan is set up for borrowers that borrow loans in 2012 or later with the caveat being if you have loans from 2008 or later with an additional loan in 2012, then you can tie your loans into the new government loan.  Similarly, you are out of luck if you have private student loans as they will not qualify for the new program.

In addition to the loan restrictions, borrowers will have to agree to an automatic withdrawal to bump the .25% decrease to .5% decrease.

There is no doubt that this plan will help some, but what about the people coming out of school that cannot find work?  Protesters are taking the issue a bit further.  They want debt forgiveness or a stoppage of payments.  In a recent article on msnbc.com, at a gathering in New York just outside the Occupy camp, Andrew Ross led talks about creating a petition and gathering support for a non-payment of loans approach where a large group of borrowers would all stop paying their loans to promote a drastic change.  People are fed up with no jobs and large amounts of school debt.

Currently student loan debt is not dischargeable and increasing rapidly.  Can the protesters make enough noise for the government to take a more aggressive approach to forgive debt?  Will the new proposed loan plan actually help those that are in real need?

Photo courtesy of Chuck Kennedy



  1. By J.D., February 23, 1378

    As a fellow student with debt, any help from Government or corporations will be greatly appreciated.

  2. By Michele Simpson, February 23, 1396

    It’s absolutely ridiculous that people can discharge their Macy charge cards, or Victoria Secret cards, or whatever other shopping cards in bankruptcy, yet those of us that have debt from investing in our education — i.e. college — are not allowed any such relief. The message seems to be: spend yourself into debt on shoes and superficial consumer items and your protected. But get into debt because you made yourself a more valuable and useful member of the society and your thrown to the wolves. Doesn’t that sound insane.

  3. By Mark Chen, February 23, 2019

    Am I crazy to think that if you take out a loan then you should repay it? Even if the laws are reformed to allow student loan debts to be discharged through bankruptcy, each student should think carefully before she takes out a loan, considering her ability to repay it as agreed. If loans are to be forgiven more liberally, then they should be given less liberally, unless we want to subsidize people getting educations that lead to only a low-income job.


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