Obama to reduce student loan debt payments
President Obama will make student loans easier to repay for millions of borrowers without adding to the national deficit, his administration said Tuesday.
Bypassing an uncooperative Congress, Obama will, by executive order, reduce to 10% the maximum percentage of income that 1.6 million current students will have to pay toward their student loans. They will also be eligible for loan forgiveness in 20 years instead of 25.
He will also allow at least 6 million people with different types of federal student loans a chance to consolidate them into one while reducing their interest rate by a half percent starting in January.
Congress passed similar measures last year, but they are not set to go into effect until July 2014.
“We know, during a time of struggle, families are borrowing more,” said Melody Barnes, director of Obama’s Domestic Policy Council. “We’re trying to lift the burden off them so they can continue to meet their obligations.”
Barnes said that burden was being lifted at no cost to taxpayers because of student loan restructuring that lowered the cost of government loan subsidies this year.
Obama will publicly introduce the policies Wednesday in an appearance at the University of Colorado campus in downtown Denver.
Along with the new policies, Barnes said she hoped the campaign also reached people who weren’t taking advantage of the current income-based repayment plan, which requires borrowers to pay a maximum of 15% of their incomes. Out of 36 million Americans with student loan debt, only 450,000 have taken advantage of it.
In an example of what the savings will be per month, a nurse who is earning $45,000 a year while paying back $60,000 in federal student loans would pay $690 a month under the standard repayment plan, according to the White House statement. If the nurse took advantage of the current 15% income-based payment limitation, the nurse’s monthly payment would drop to $358. Under the Obama plan, someone who graduates next year and is earning the same amount would pay $239 a month.
Unemployed students can pay interest only or defer payments, but the loan still accrues interest during the deferral period.
Barnes said Obama was using executive authority to push the proposals forward because “we cannot wait for congressional Republicans to act.”
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