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The State of Student Loans

Obama's State of the Union speech addressed the problem of student loan debt.

In his State of the Union speech last night, President Obama took on the topic of steep student loans, touching on an issue Miller-McCune looked at earlier this week. He urged the Senate to pass a bill to "revitalize our community colleges," and he added that this bill will end taxpayer subsidies for student loans (for detailed commentary on this issue, see Tim Dickenson's Rolling Stone article) and re-channel this money into Pell grants. The Pell Grant program gives need-based grants to undergraduates and some grad school students, based on their estimated family contribution, cost of attendance and enrollment status.

Perhaps most notably, he said that college graduates will have their loan payments capped at 10 percent of their income — a signal change from the plan we wrote about, which can actually increase the amount of interest repaid on loans for borrowers who don't pursue careers in public service. And all student loan debt will be forgiven after 20 years — 10 for grads who work in public service (which is nothing new).

If this plan is implemented universally, it would address the current enrollment problems of the Income-Based Repayment plan. Plus, the plan would make it affordable for borrowers to pay back their loans in a reasonable time frame, without fear that their manageable monthly payments will lead to a lifetime of debt.