Cutting Down Student Debt

May 10, 2013
Wall Street Journal  
student loan news

President Barack Obama's budget for next year includes a proposal that the government forgive billions of dollars in student debt over the next decade. The proposal would increase the number of borrowers eligible for income-based repayment, which is designed to help low-paid workers stay current on federal student debt. Under it, borrowers -- whose loans must have been issued since October 2007 -- make monthly payments equivalenPresident Barack Obama's budget for next year includes a proposal that the government forgive billions of dollars in student debt over the next decade. The proposal would increase the number of borrowers eligible for income-based repayment, which is designed to help low-paid workers stay current on federal student debt. Under it, borrowers -- whose loans must have been issued since October 2007 -- make monthly payments equivalent to 10 percent of their income after taxes and basic living expenses; the balance is forgiven after an average 20 years of timely payments. If approved by Congress, the budget proposal would extend income-based repayment to borrowers with pre-2007 loans and would make tax exempt any debt forgiven through the program. Administration officials and student advocates say this would help reduce the rise in defaults on federal loans and would prevent financial damage to households and the economy. Critics counter that the plan would encourage students to over-borrow at the expense of taxpayers.

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