As we have discussed many times in the past on this blog, student loans are a major source of debt for Americans. Because student loans are not usually forgivable through bankruptcy, individuals with significant student loan debt can feel backed into a corner with nowhere to turn.
It was recently announced that President Obama is taking executive action to help individuals who are in over their heads with student loan debt; however, critics say that the plan likely won’t provide enough savings to make a difference for many Americans with student loan debt.
A policy analyst with the Education Policy Program at the New America Foundation reported that the president’s plan likely will only benefit Americans who have already completed college and even this group could see minimal relief.
The policy analyst admitted that the specifics of the plan have not been released yet, but the plan appears to focus primarily on qualifying more individuals with student loan debt for an income-based repayment plan that would set loan repayment amounts to 10 percent of an individual’s income. The remaining balance of the loans would then be forgiven after 20 years of on-time payments.
Although the debt forgiveness aspect may sound like a great option for individuals with significant student loan debt and modest incomes, borrowers will likely have to pay income taxes on the loan amount that is forgiven, which could result in a hefty bill from the Internal Revenue Service. That’s because forgiven debt is generally considered taxable income.
Please check back tomorrow for more information on how the president’s plan to assist Americans overburdened by student loan debt may fall short.
Source: The Hill, “White House student loan proposal won’t help many,” Clare McCann, June 16, 2014