President Obama will use his executive authority to expand a provision of the federal student loan program that allows borrowers to cap their loan payments to 10 percent of income. Obama announced this action yesterday in his weekly address to the nation. Additionally, the President urged the Congress to take action on the issue of student loan debt by supporting the student loan refinance bill currently under consideration in the Senate.
Obama cites the rapidly increasing cost of a college education, which he says has tripled over the past 30 years, and the burden of debt it places on those seeking a college education, as reasons for his action. The Pay as You Earn federal student loan repayment plan is currently offered to students that borrowed Oct. 1, 2007 or later. This executive action would expand that option to borrowers with older loans. An estimated five million borrowers will be affected by this policy change.
The Bank on Students Emergency Loan Refinancing Act, introduced by Senator Elizabeth Warren, would allow borrowers to refinance student loans at current, lower rates. The bill would be paid for by a “Fair Share Tax” on wealthier Americans. The Congressional Budget Office estimates the Bank on Students bill would decrease the federal deficit by $22 billion over a ten-year period.
Last week, the Senate Budget Committee held hearings on the issue of student loan debt. Committee Chair Patty Murray, in her opening remarks, framed the problem as an issue that hurts borrowers and the national economy. According to Murray, today the average young household will hold an unprecedented $30,000 in student loan debt
“Historically, young Americans have been a source of economic activity, as they set up households and as they start their careers. But today, many are finding it difficult to save up for a down payment on a home. And the high monthly bills to pay back student loans can disqualify many people from getting a mortgage.” — Patty Murray, Senate Budget Committee Chair
Brittany Jones, a 2011 college graduate, testified before the committee on her own experience with student loan debt. While pursuing a degree in education, she accumulated over $60 thousand in loan debt as college costs rose each year she attended. After graduation, she chose to enter the work force rather than continue to borrow for the additional two years of education required for teacher certification. She found a teaching position that paid $10 per hour. Her monthly student loan payments were $600. Combined with her rent and other living expenses, she was unable to keep current with her loans.