Racing to help as many voters as he can before the November 2012 general election arrives, President Barack Obama will outline a plan on Wednesday to allow millions of student loan recipients to lower their payments and consolidate their loans.
Outside of mortgages, student loans are the number one source of household debt, according to President Obama. And because young voters were an important voting block in his 2008 historic election, White House Senior Advisor Valerie Jarrett said it is imperative that the president ease the burden for young voters.
The president’s announcement comes the same day a new report is being released by the College Board. The report shows average in-state tuition and fees at four-year public colleges rose $631 this fall, or 8.3 percent, compared with a year ago. Nationally, the cost of a full credit load has passed $8,000, an all-time high.
Jarrett added that Obama will use his executive authority to provide student loan relief in two ways.
First, he will accelerate a measure passed by Congress that reduces the maximum repayment on student loans from 15 percent of discretionary income annually to 10 percent. Obama wants it to go into effect in 2012, instead of 2014. In addition, Jarrett said the remaining debt would be forgiven after 20 years, instead of 25.
About 1.6 million borrowers could be affected. Second, he will allow borrowers who have a loan from the Federal Family Education Loan Program and a direct loan from the government to consolidate them into one loan. The consolidated loan would carry an interest rate of up to a half percentage point less than before. This could affect 5.8 million more borrowers.
U.S. Education Secretary Arne Duncan said in a recent conference call with reporters that the changes could save some borrowers hundreds of dollars a month.
“These are real savings that will help these graduates get started in their careers and help them make ends meet,” Duncan said.
The changes will carry no additional costs to taxpayers, according to Duncan.
Last year, Congress passed a law that lowered the repayment cap and moved all student loans to direct lending by eliminating banks as the middlemen. Before that, borrowers could get loans directly from the government or from the Federal Family Education Loan Program; the latter were issued by private lenders but basically insured by the government. The law was passed along with the health care overhaul with the anticipation that it could save about $60 billion over a decade.
Today, there are 23 million borrowers with $490 billion in loans under the Federal Family Education Loan Program, according to the U.S. Department of Education. And last year, the federal governement made $102.2 billion in direct loans to 11.5 million recipients. Increases in federal aid have helped ease the burden on students dealing with tuition increases, the White House Council of Economic Advisers said in an Oct. 26 report.
“Despite large increases in the published price of college over the past four years, the average student has not seen commensurate increases in the net price of college, defined as the published price minus grants, scholarships and tax benefits,” the report said.
Meanwhile, the Education Department and the Consumer Financial Protection Bureau announced a project on Oct. 25 to simplify the financial aid award letters that colleges mail to students each spring.
A common complaint is that colleges obscure the inclusion of student loans in financial aid packages to make their school appear more affordable, and the agencies hope families will more easily be able to compare the costs of colleges.
Separately, James Runcie, the Education Department’s federal student aid chief operating officer, told a congressional panel at an Oct. 25 hearing that the personal financial details of as many 5,000 college students were temporarily viewable on the department’s direct loan website earlier this month. Runcie said site was shut down while the matter was resolved, and the affected students have been notified and offered credit monitoring.