President Barack Obama on Monday proposed two plans designed to ease the burden of student loan debt for potentially millions of Americans.
Obama signed an executive order to expand the Pay As You Earn repayment program that capped borrowers' repayments at 10% of their monthly income. The move extends such relief to an additional 5 million borrowers with older loans who currently are ineligible. Specifically, it will be available - starting in December 2015 - to those who received loans before October 2007 or stopped borrowing by October 2011.
He also scolded congressional Republicans for opposing legislation proposed by Sen. Elizabeth Warren, D-Mass., to allow certain borrowers to refinance their student loans - whether those loans were made by the federal government or banks.
That bill is unlikely to overcome the opposition of Republicans, who argue the measure would come at too high a cost for the government. Obama said Republicans were not doing enough to support students, arguing that it should be possible for graduates to get a lower interest rate in the same way homeowners are able to.
Warren's measure would allow an estimated 25 million Americans to refinance their loans. Reduced interest payments would cost the government about $58 billion over 10 years, according to the Congressional Budget Office, but the legislation would raise $72 billion by imposing a new tax on some high-income individuals.
The Pay As You Earn program, meanwhile, includes a forgiveness measure for on-time payments and public-sector employees. Teachers can have their balance canceled after ten years. Low-income borrowers can have their balance canceled after 20 or 25 years of on-time payments.
Borrowers who don't qualify for forgiveness but use a repayment program find their monthly payments reduced but spread out over a longer period of time. That means they will pay more over the lifetime of the loan, as there is additional time for interest to accrue.
An estimated $1 trillion in federal student loans or loan guarantees is outstanding, on top of more than $100 billion in outstanding private student loans that are not federally guaranteed, the Congressional Budget Office reported. While economists argue that a postsecondary education is an investment that pays off, average tuition at four-year public colleges has more than tripled over the past three decades, according to the administration, and 71% of those who graduated with a bachelors degree carried debt, which averaged $29,400.
Obama on Monday also directed Education Secretary Arne Duncan to take actions such as promoting awareness of repayment options and automatically lowering interest rates for active-duty military without the need for additional paperwork.
The administration will also try to lower student costs by renegotiating government contracts with companies that service student loans.
Sallie Mae's former loan-servicing business, spun off in May into an independent company called Navient. It expects to pay an additional $103 million - on top of $70 million already set aside - to settle two federal investigations.