President Barack Obama speaks at the University of Colorado Denver on October 26, 2011, about his new plan to lower …On Wednesday, the Obama Administration announced that they were taking steps to ease the burden of student loan debt for college students via executive order, without seeking Congressional approval. But the plan may leave out hundreds of thousands of people who took out loans before 2008, and are still struggling to pay them off.
The President's new plan is part of a series of executive actions "to get the country back on track, because we can't wait for congressional Republicans to act," Melody Barnes, director of the White House Domestic Policy Council, said during a press conference. In the U.S., people owe nearly $1 trillion in federal and private loans-more than they do on credit cards.
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Talking to an audience of about 4,000 students at the University of Colorado-Denver that same day, President Barack Obama emphasized education and advancement instead of politics.
"I want America to have the most highly skilled workers doing the most advanced work. I want us to win the future," the President said. "So that means we should be doing everything we can to put a college education within reach for every American."
But, given the rapidly rising cost of a college education, the saturated job market, and the fact that advanced degrees have become increasingly commonplace, will this new executive order make much of a difference?
The new measures include lowering the maximum payment required on student loans from 15 percent of borrowers' annual discretionary income to 10 percent-an idea that was actually passed by Congress last year and intended take effect in 2014. Instead, the change will take place in 2012.
The new executive order will also forgive remaining debt after 20 years of continuous payment, instead of the current 25 year cut-off. And borrowers who hold loans from both the Federal Family Education Loan Program and directly from the government will be allowed to consolidate them as soon as January, shaving up to half a percentage point off their interest rate-an option which Duncan said could benefit people who have been paying down their loans for years already, but still have a balance.
According to White House officials, a nurse earning $45,000 a year who also has $55,000 in federal student loan debt could pay up to $451 less each month with these new measures in place. A teacher earning $35,000 a year who has $25,000 in federal loan debt would see his or her payments go from $287 a month down to $171.
But, as the Associated Press points out, the president's new plan excludes a lot of people. The accelerated component only applies to borrowers who took out a loan in 2008 or later, according to the Education Department. And in order to qualify for the consolidation option, the borrower's loans must be both a direct loan from the government and one from the Federal Family Education Loan Program; other loans can't be consolidated, and borrowers who are already in default won't qualify, which leaves out hundreds of thousands of people who have been struggling to pay off their student loans for years.
"The President's decision to expedite the cap reduction in income-based student loan repayment is an imperative step in the right direction, given the near one trillion dollars of student loan debt our generations possesses," Matthew Segal, president and co-founder of OUR TIME, an organization that represents voters under age 30, said in a statement. "Perhaps if Congress was not in paralysis, we could also begin measures to address why higher education is so expensive in the first place, greatly outpacing the cost of living."
The money to fund the programs will come from ending $40 billion in government subsidies to banks and instead having the government lend money directly to borrowers-"Literally cutting out the middle man and making the loans ourselves," Duncan explained.
Out of the 36 million people with student loan debt right now, only about 450,000 take advantage of the current program that allows them to cap their payments at 15 percent of their discretionary income. But lowering that cap to 10 percent and publicizing the program (more information is available at Studentaid.ed.gov), the administration hopes to bring more debt relief to borrowers as well as make a college education more affordable to prospective students.
"We hope people will sign up for this program investigate this program and take advantage of it," Barnes said. "It could have a significant effect on those who are trying to pay their loans back right now."
Do you or your kids have any student loan debt? Do you think these new measures will help you?
Also on Shine:
- Does going to college make you smarter, or poorer?
- Student loan debt: 3 tips for tackling it
- How to use college rankings wisely
- Will you be able to afford college for your child?
- 6 ways to save for college while saving for your retirement
- What would you like to ask Michelle Obama or Jill Biden? Shine is taking your questions to the White House!