Using his power of executive order, President Barack Obama is aiming to expand the number of students with federal student-loan debt who qualify for an affordable loan-repayment program.
The president on Monday is scheduled to sign a memorandum directing the U.S. Secretary of Education to propose regulations that would allow more students to qualify for a program that caps borrowers’ repayments at 10 percent of their monthly income, The Associated Press reported. The move would expand coverage to an estimated 5 million borrowers with older loans, who are currently ineligible for the relief. The U.S. Department of Education will begin the process to amend its regulations this fall with a goal of making the new plan available to borrowers by December 2015, according to materials released by the White House.
The government’s Pay As You Earn program was signed into law in 2010 and launched in 2012 as a way to make students’ loan payments more manageable for approximately 1.6 million borrowers, according to the Education Department. Monthly payments are set on a sliding scale based on income. Any remaining balance is forgiven after 20 years of payments, or 10 years for those in public service jobs. The program is a complement to Income-Based Repayment, which caps monthly loan payments at 15 percent of a borrower’s discretionary income and which about 1.3 million borrowers already use.
Currently, the Pay As You Earn option is not available to students with older loans. The expansion would allow borrowers who got loans before October 2007 or stopped borrowing by October 2011 to be eligible for the more-affordable repayment terms under Pay As You Earn.
The Presidential Memorandum also outlines a series of new executive actions aimed to support federal student loan borrowers, especially for vulnerable borrowers who may be at greater risk of defaulting on their loans.
“It’s clear that more people need to know about the full range of repayment options,” says Lauren Asher, president of The Institute for College Access & Success. “These are all positive steps to help more borrowers stay out of default, keep up with their payments, and avoid unnecessary forebearances.”
It is expected that Obama will use an afternoon Rose Garden appearance to voice his support for more sweeping legislation introduced by U.S. Senator Elizabeth Warren, D-Mass., that would let an estimated 25 million college graduates with heavy debts refinance their loans at lower rates available to borrower this year. The Bank on Students Emergency Loan Refinancing Act would cost the government about $58 billion over 10 years in reduced interest payments, but the bill includes a mechanism to raise $72 billion with a new tax on some high-income individuals. This move could save a typical student $2,000 over the life of a loan.
In his weekly radio address on June 7, Obama underscored the importance of helping students get out from under the “crushing debt” with government measures to ease the terms of loans.
On June 10, the president will do a live Q&A with Tumblr, on the issue of college affordability and student debt.