President Barack Obama will announce Wednesday that beginning in January students who take out federal college loans will be able to repay them with monthly payments no greater than 10 percent of their discretionary income.
The cap on the amount of student loan payments had been set to begin with loans made in 2014 and afterward. Secretary of Education Arne Duncan and White House adviser Melody Barnes said in a conference call late this afternoon that the start date was being moved up in response to nearly 32,000 signatures on a petition on We the People, part of the White House’s website, asking the administration to forgive student debt.
Barnes said the moves were part of a series of actions the president is taking to put more people back to work and improve the lives of everyday workers. “We can’t wait for Congressional Republicans,” said Barnes, head of the president’s Domestic Policy Council. She said that Obama had the executive authority to make the changes without congressional approval.
The actions Obama will announce at a speech in Denver are not primarily aimed at debt forgiveness – except it will forgive debt that is still owed after making payments for 20 years rather than the current 25 years – but could reduce monthly payments by hundreds of dollars a month. Borrowers who are in default are not eligible to participate, though those who are struggling but still making payments will be eligible.
Duncan and Barnes also announced a new program to consolidate debt for those graduates who have both direct student loans and federally subsidized loans into one payment, with a ½ percent reduction in the interest rate. About 6 million borrowers are estimated to be eligible for this program.
Barnes said the consolidation and reduction of the interest rate can be accomplished at no cost to the government because the government will no longer have to pay the subsidies to the banks that currently hold the notes.
She estimated that about 1.5 million current students and borrowers could be helped by the new “pay as you earn program” with the 10 percent cap.
Barnes said the student loan changes represent the first response to a petition initiated on We the People, which currently hosts about 170 petitions on subjects ranging from puppy mills to concealed guns.
Duncan and Barnes said that those eligible to participate in the two new programs would be contacted by the appropriate offices after the beginning of the year. But they also emphasized that many who don’t qualify for the 10 percent may qualify for the regular pay as you earn program that caps payments at 15 percent of discretionary income.
For more information, call 1-800 4FEDAID or visit studentaid.ed.gov.