Going to college back in the ‘70’s was much more affordable than today. Between taking a semester off here and there to work full-time and stash cash for upcoming college expenses, and a small grant here, and a little scholarship there, this Examiner got through 4 years with only incurring negligible loan debt (we won’t talk about the fact that my entire graduate program expenses all went on a high interest rate credit card). And as interesting and haphazard and unorganized as the recent “Occupy Wall Street” campaigns have been – one voice came out of the crowd – the voice of the average college student who now owes in the $30,000 range of college loans, and either can’t find a job or is working for minimum wage. That voice could be heard saying “They bailed out Wall Street – are they going to help us?” Well, it turns out that Washington, DC is listening. Yesterday, the Obama Administration announced it is taking steps to increase college affordability by making it easier to manage student loan debt.
According to the DoE, the announcement is part of a series of executive actions to put Americans back to work and strengthen the economy because we can’t wait for Congressional Republicans to act. The Administration is moving forward with a new “Pay As You Earn” proposal that will reduce monthly payments for more than one and a half million current college students and borrowers. As you know, not everything the President decrees requires Congressional approval.
Starting in 2014, borrowers will be able to reduce their monthly student loan payments to 10 percent of their discretionary income. But President Obama realizes that many students need relief sooner than that. The new “Pay As You Earn” proposal will allow about 1.6 million students the ability to cap their loan payments at 10 percent starting next year, and the plan will forgive the balance of their debt after 20 years of payments. Additionally, starting this January an estimated 6 million students and recent college graduates will be able to consolidate their loans and reduce their interest rates.
“In a global economy, putting a college education within reach for every American has never been more important,” President Obama said. “But it’s also never been more expensive. That’s why today we’re taking steps to help nearly 1.6 million Americans lower their monthly student loan payments. Steps like these won’t take the place of the bold action we need from Congress to boost our economy and create jobs, but they will make a difference. And until Congress does act, I will continue to do everything in my power to act on behalf of the American people.”
“College graduates are entering one of the toughest job markets in recent memory, and we have a way to help them save money by consolidating their debt and capping their loan payments. And we can do it at no cost to the taxpayer,” said U.S. Secretary of Education Arne Duncan.
Current law allows borrowers to limit their loan payments to 15 percent of their discretionary income and forgives all remaining debt after 25 years. However, few students know about this option. Students can find out if they are currently eligible for IBR at www.studentaid.ed.gov/ibr.
The Administration is also planning to offer student borrowers the chance to better manage their debt by consolidating their federal student loans. Today, approximately 5.8 million borrowers have both a Direct Loan (DL) and a Federal Family Education Loan (FFEL) that require separate payments, which makes them more likely to default. To address the needs of these borrowers, the Administration will allow borrowers the convenience of a single payment to a single lender for both loans, resulting in lower monthly payments and interest savings.
According to the President, these changes carry no additional cost to taxpayers.
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