When the government’s new student loan consolidation law takes effect, what you need to know
As the country’s student loan debt ballooned to $1.4 trillion, the government in May passed the so-called “Student Loan Consolidation Law,” the latest step toward consolidating all the federal student loans into a single consolidated account.
The law, signed by President Pranab Mukherjee on May 10, would allow students to consolidate their federal student loan debts with their state and local government debt, thereby freeing up funds to pay for college.
With the new consolidation law, student loans would be consolidated in one consolidated account in the federal government, with a limit of $2,500 per student.
That account would remain open for borrowers who want to refinance their loans.
If a borrower decides to refile a federal loan, it would have to pay back the full amount of the loan, with interest.
In addition, borrowers who borrow more than $4,000 per year in federal student debt would be eligible to reflate their loans under the new law.
This consolidation law will not apply to private loans or loans taken out by banks.
According to a study by the Financial Policy Institute, $4.4 billion in federal loans were taken out from September 2016 to September 2017.
But even as the consolidation law was being implemented, the country was grappling with rising tuition costs, rising tuition inflation and rising unemployment rates.
“The government has been taking on the burden of student debt for the last 15 years,” said Sanjeev Singh, senior fellow at the Economic Policy Institute and author of The Crisis in the Education Sector.
He said the consolidation of student loans was a first step in a longer-term process that would also involve government efforts to reduce loan defaults.
There were more than 2.6 million students in private colleges in India, up from 2.2 million in 2009, according to a report from the Education Policy Institute.
Among those students, the average age of their parents was about 35, according the report.
India’s student debt levels have risen dramatically since the government launched a national campaign in 2016 to bring down the costs of education, with an initial goal of reducing the cost of college by $2 trillion by 2020.
By the end of 2020, India had added about $1 trillion to its debt burden, according to a report by the World Bank.
Student loan borrowers are eligible for a range of financial assistance, including subsidized loan forgiveness and financial counseling, but the consolidation legislation was supposed to ease some of the burden.
President Pranap Mukherjee, who has called the new legislation a “victory for the poor and middle class,” said on May 14 that the government was “unmistakably” implementing the consolidation program.
In a May 15 speech, the president said that the consolidation scheme would be in place by March 31, 2020, with the aim of ending the “exorbitant” tuition costs and increasing access to higher education for all.
At the time, the consolidation bill was projected to cost the government around $50 billion, but analysts estimated the cost at more than a trillion rupees ($12.2 billion).
The government said the plan would be implemented in phases, and the consolidation was meant to take effect “in all sectors of the economy” by the end the fiscal year of 2019.
As of June 30, the total amount of student loan outstanding stood at $1,427.6 billion.
During his speech, the President said that if people could consolidate their debt, “the economy will grow by around 20%, and India will be a world leader.”
The student loan law would be fully implemented by July 2019.
In November 2016, the Congress, the ruling party, introduced a new bill in the lower house of parliament to expand the consolidation process.
Its version of the consolidation proposal would allow borrowers to reframe their loans at any time, but would not affect existing borrowers.
Despite the consolidation, some economists say that the new rules would not eliminate the high cost of attending college.
“We’re not going to eliminate tuition,” said Vijay Sreenivasan, chief economist at Capital Economics.
Sreenivasam said that while there would be a decrease in the cost for a student to attend college, the savings for a college student would still be significant.
Rising costs of college While the consolidation effort may help alleviate the financial burden of many Indian students, there is a downside.
While most of the changes are in the form of lower fees for students, some students will see their fees rise to as much as 25% in some cases.
Some students may find themselves stuck paying for college that will have no effect on their financial future, while others may not have access to loans they might need to finance a college education.
Many borrowers also