How Much Would Obama's Student Loan Proposal Save You?

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For the last few months, media outlets -- including this one -- have been warning about that if Congress didn't act by July 1, student loan interest rates were set to double. Well, now that the deadline has passed, interest rates have gone up, and the continued deadlock between Republicans in Congress and President Obama suggest that, at least for the time being, they aren't coming back down.

There's an old saying that people vote with their wallets -- and, as 2013's fall semester gets closer, voters who are in college or have children going to college may well begin to wonder whose student loan proposals will lighten their wallets the most, and which options will make them heavier.

At the moment, there are four proposals floating around Washington: Keeping the current situation, under which rates are doubling; extending the recently lapsed 50 percent rate cut; a bipartisan Senate proposal tying rates to the treasury rate; and an Obama-backed proposal tying rates to the 10-year Treasury rate. Depending on which proposal gets adopted, the interest tab on a $5,000 subsidized student loan could range from $721 to $1,904.

If you're wondering how these loan proposals would affect you, Slate has a fantastic loan calculator. Give it a peek -- and figure out which politician's plan is going to save you the most money!

Bruce Watson is DailyFinance's Savings editor. You can reach him by e-mail at, or follow him on Twitter at @bruce1971.

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How Much Would Obama's Student Loan Proposal Save You?

One solution is to take advantage of some of the loan forgiveness opportunities that are already out there. The military, the federal government, and state governments offer dozens of programs that will wipe away at least part of your debt, in return for a few years of service. Most are tied to specific, in-demand professions in areas such as health care, law enforcement, and education. but others -- like the military, the Peace Corps, and AmeriCorps -- are open to people from a variety of majors and disciplines.

American Student Assistance, a nonprofit group that helps people manage their student loan debt, has produced a free list of occupation-based loan forgiveness programs. It's worth a peek -- even if you don't plan to become a firefighter, policeman, speech therapist or social worker.

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Several programs will allow you to structure your repayment of federal student loan debt based on your income. For example, if your loan payments are more than 15 percent of your discretionary income, you may qualify for income-based repayment, under which your monthly payment calculated based primarily on what you earn, and after 25 years of payments, any remaining money owed gets forgiven. Other programs, including income-contingent repayment and pay-as-you-earn forgiveness, are pegged to different income levels.
Nobody wants to die, go through bankruptcy, or suffer a total and permanent disability. However, if you experiences one of these life events, your federal student loans will be discharged. The banks behind private loans, however, may still go after your cosigners in an attempt to recoup their losses.

Assuming you're not a too-big-to-fail bank, the idea of going deeper into debt in order to make more money may sound counterintuitive. However, in many fields, a graduate degree can vastly increase earning power. "What's It Worth," a publication of Georgetown University's Center on Education and the Workforce, ranks graduate programs by their return on investment. Not surprisingly, degrees in medicine, the social sciences and hard sciences top the list.

Photo: Serge Melki,

Ultimately, student loans are like any other debt: Getting out from under them requires that you understand your situation and keep your focus on repayment. In this regard, the best advice is also the most obvious. First, be aware of how much money you owe and what the interest rates are on each of your loans. Work on paying off the highest-interest loans first, while making minimum payments on the rest of your loans. As you pay off each loan, take the money that you were spending on it and roll it over onto your highest interest loan.

But, while discipline is good, it's also important to reward yourself. Paying off loans is a big deal: give yourself a nice present every time you put one to bed!

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