Cuomo’s Student Loan Forgiveness Plan Not As Good As It Seems, Advocates Say

Among the school aid recommendations laid out in his 2015-2016 budget, Gov. Andrew Cuomo proposed the “Get on Your Feet” loan forgiveness program for recent college graduates burdened by large amounts of student debt. During his joint State of the State and budget address, the governor said student loans are one of the biggest burdens on recent graduates as they start their careers. 

“Many of our new college graduates face high student loan debt as they begin their career and it’s a troubling situation because they have high debt and low wages,” Cuomo said as he proposed to pay off loan debt for new graduates who make less than $50,000 a year. “We’ll pay the debt for the first two years so they can get their feet under them and they can get on with their lives,” Cuomo added.

While this sounds great, some advocates say a closer examination of his proposed plan reveals it does little to offset the student loan burden thousands face.

This is how Cuomo’s proposed program would work.

After graduating college, students have six-month grace period before they have to begin to pay their student loans. Then a standard repayment plan kicks in with monthly payments that repay the loan in a 10-year period. For those who cannot make those payments, another option is the Pay As You Earn (PAYE) program, which lets a recent college graduate contribute only 10 percent of their discretionary income and never more than the 10-year standard repayment plan.

Under Cuomo’s proposal, the state would supplement the PAYE program. A college graduate would make still have to make the 10 percent payments out of their pocket. The state would then pay the difference between the standard repayment and the PAYE program for two years. While it definitely gives graduates a boost, it doesn’t eliminate the 10 percent of discretionary income they must contribute.

In its first year, the program is expected to enroll about 7,100 graduates and cost about $5 million. When fully phased-in, the state estimates more than 24,000 graduates will participate in the program, which will cost about $41.7 million in 2019-20.

Which means, under this plan the average student will receive $1,750 annually for two years toward their student debt, a Cuomo administration official said.

“This is not the silver bullet to help with the state and nation’s students’ gigantic debt, but it helps and, to the extent that you can help offset those costs, is good public policy,” Blair Horner, executive director of NYPIRG, said. “But more needs to be done. Particularly in the area of, ‘How do you reduce the costs so people do not have to take those loans in the first place?’”

According to the federal government, the average student debt balance in New York is $25,537. For four-year SUNY students, that number can be much higher. Annual tuition and fees for on-campus SUNY students costs about $19,602 and CUNY students who are living away from home spend about $19,984. In addition to those loans, students face interest rates on those loans.

Two of the loan types allowed under the PAYE program are Direct Subsidized Loans and Direct Unsubsidized Loans, which have a 4.66% interest rate in 2015.

So, for example, the average student with a debt of $25,537 and a 4.66% interest rate would accumulate $1,021.48 annually in interest—about $700 less than the amount given by the state.

“There are other things the state could be doing,” Horner said. “The governor could—after having raised SUNY tuition for the last three years or so—propose a tuition freeze to help costs. The [Tuition Assistance Program] has not kept pace with the maximum public tuition, so for the last 20 years, the state has had a systematic disinvestment in public college. So, there are other real issues that need to be addressed.”

Horner said the state could also take the lead from President Obama, who proposed free community college tuition during his State of the Union address. Obama also proposed in June to expand the existing PAYE program to include borrowers who took out loans before Oct. 2007, which would make about 5 million additional people eligible for the program nationwide. A Cuomo administration official said the current funding does not address Obama’s proposal.

Horner said this does little to address the “$1 trillion problem” of student debt owed nationally. “The feds have to weigh-in, the state has to weigh-in, localities have to weigh-in in regards to community colleges. There’s all of that stuff, but that doesn’t mean you can’t do anything unless you do everything and so that’s our reaction to that. We have a positive reaction to what the governor is saying, but we’ll certainly be urging more be done,” he said.