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There was an expectation of a new announcement from the Obama Administration on student loans Wednesday, and we got a preview this afternoon. Responding, in the words of White House officials, to a petition at their new We the People petition site, the Administration will institute two new programs that could potentially save students who qualify hundreds of dollars a month on their student loans.
The Wall Street Journal explained the outlines of the plan today. But here’s the direct statement from the White House:
The Administration is moving forward with a new “Pay As You Earn” proposal that will reduce monthly payments for more than one and a half million current college students and borrowers. Starting in 2014, borrowers will be able to reduce their monthly student loan payments to 10 percent of their discretionary income. But President Obama realizes that many students need relief sooner than that. The new “Pay As You Earn” proposal will allow about 1.6 million students the ability to cap their loan payments at 10 percent starting next year, and the plan will forgive the balance of their debt after 20 years of payments. Additionally, starting this January an estimated 6 million students and recent college graduates will be able to consolidate their loans and reduce their interest rates.
As I said, there are two programs here. The first is income-based repayment. Under current law, graduates with student loans can opt to pay 15% of their income for 25 years instead of a monthly student loan repayment based on the cost of the loan. In the reconciliation sidecar to the Affordable Care Act, actually, this was reduced to 10% of income, starting in 2014. The plan announced under executive authority moves that date up to 2012, and changes the debt forgiveness end date to 20 years from 25. This would only benefit those who graduate college between 2012 and 2014; people who have already graduated or who are in repayment won’t benefit from this change. The Administration claims that 1.6 million graduates would be eligible for the new program.
Not a lot of borrowers have actually taken up income-based repayment, even though it’s a good way to manage payments. Of the 36 million Americans with student loan balances, only 450,000 have IBR. As much as this will lower payments for new graduates, the goal is to advertise IBR generally, to get more take-up. “We’re letting people know this is there for them, and letting them know that there’s a greater benefit being pushed up,” said White House Domestic Policy Advisor Melody Barnes on a conference call announcing the new plan.
The second program is an artifact of other changes in the Affordable Care Act’s reconciliation sidecar. In that bill, most student loans that people can access were converted from private loans to loans directly administered by the government. This has left many borrowers with two types of federal government loans – the Direct Loan (DL) and the Federal Family Education Loan (FFEL). These require separate payments but are both managed by the government. 5.8 million borrowers have the two types of direct loans. So the new program would allow those borrowers to consolidate the loan, and in the process receive a reduction in the interest rate of 0.5%. That translates into a slightly lower monthly payment. The savings from the consolidation of the loan (presumably in administrative costs) will pay for the move-up in the date for the new income-based repayment plan, so that the set of programs do not cost any additional taxpayer money. Borrowers with the two loans will be contacted by the government about the opportunity, and they will have from January and June of next year to make the consolidation.
On the conference call, Barnes hailed this “series of steps to help borrowers manage student loan debt and make it easier to repay student loans.” And she said it was a direct result of a petition signed by 30,000 Americans at We The People, the White House’s new petition site, asking for a reduction in the burden of student loans.
“We are building on the student loan reforms of last year,” said US Education Secretary Arne Duncan on the call. And this does build on those reforms. The consolidation just seems like common sense, with a small 0.5% interest rate sweetener in it. The move-up of the date on income-based repayment is a belated acknowledgement that people need help immediately, and back-dating all of these programs to save money is a dumb idea.
But it’s a fairly narrow plan. If you just have one type of federal loan, you don’t get the interest rate reduction. If you’ve already graduated, you can’t get the new income-based repayment. This, of course, is what you get when you use regulatory authority instead of statutory changes in the law.
There are some good consumer education elements added to this. The Consumer Financial Protection Bureau will institute a Know Before You Owe program, basically a draft of a financial aid disclosure form that colleges and universities can provide to students so that they can compare aid packages and comprehend their choices better. It would show total estimated debt, monthly payments after graduation and what financial aid does and does not cover. There are a couple other associated public education programs rolling out with this.
Overall, it’s a small but relatively sensible program to reduce student loan debt. And given that student loan debt is one of the signature laments of the 99% movement, it’s probably decent politics.
UPDATE: It’s good to look at some hypotheticals here, which the White House has provided in a fact sheet:
A nurse who is earning $45,000 and has $60,000 in federal student loans. Under the standard repayment plan, this borrower’s monthly repayment amount is $690. The currently available IBR plan would reduce this borrower’s payment by $332 to $358. President Obama’s improved ‘Pay As You Earn’ plan will reduce her payment by an additional $119 to a more manageable $239 — a total reduction of $451 a month.
A teacher who is earning $30,000 a year and has $25,000 in Federal student loans. Under the standard repayment plan, this borrower’s monthly repayment amount is $287 . The currently available IBR plan would reduce this borrower’s payment by $116, to $171. Under the improved ‘P ay As You Earn’ plan, his monthly payment amount would be even more manageable at only $114. And, if this borrower remained a teacher or was employed in another public service occupation, he would be eligible for forgiveness under the Public Service Loan Forgiveness Program after 10 years of payments.
The Public Service Loan Forgiveness Program is a separate law for which graduates would be eligible anyway. The bigger point here is that you’re talking about a $120-$125 a month benefit, with what was announced today, for someone making the median income, and even less, more like $55-$60 a month, for someone below that median income. And the 0.5% reduction in the interest rate on loan consolidation is even less of a benefit on a monthly basis, probably not even $1,000 over the life of the loan. This is nice, but isn’t that big a deal from a macroeconomic perspective. Even if a million people take advantage of income-based repayment, you’re talking about an annual benefit of right around $1 billion, if that. Even if all 5 million eligibles consolidate their loans, it’s much less, maybe $5 billion over 20-25 years. And consolidates presumably means cuts to jobs of the people processing multiple sets of student loans, though on that point I’m not sure (but where else would the savings come from).
What IS a big deal is getting people into the income-based repayment plan generally. That can save people a lot of money, and the President calling attention to it can highlight that.
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During the past year, I worked full-time and studied part-time (thirteen credits since January). I paid upfront for each of my four classes.
If I had waited, I could’ve borrowed this money… and perhaps just gotten the balance written off after 20 years?
Does this apply to grad school? Only undergrad? Or perhaps it varies?
This sounds like a step forward. Yet it’s also likely to reduce the flow of money back toward the pool of money available for future student loans to new students. And that in turn might tend to put a tourniquet on the insane inflation in higher ed costs. So much the better.
I don’t see it being all that big, unfortunately, the IBR translates a savings of $125 a month or so on a person making the median wage of $50,000. Getting people into IBR over just taking the monthly payment from the loan is a BIG savings, more like $400-$500 a month, so hopefully this will improve takeup.
Obama moved the plan up from 2014 to 2012.
Why, it’s almost as if there were something big happening in 2012 that Obama wants to gain support of, like an election or something.
these are cute tricks, pretending to do something when you have already agreed that no money can be spent to do it, and so on
razzle dazzle
I don’t understand how a law can be changed through executive authority when the original law was passed by Congress. I assume this means President Romney/Cain/Perry can undo this action with the stroke of a pen on 01/21/2013.
x2
Since the ed institutions are more powerful than the students, any benefits are likely to be usurped by the ed institutions.
Just to put this in a little perspective, a dependent student from a moderate-income family ($40,000 – $60,000) with no home equity who is not eligible for either federal or state grant aid and has only work-study has to borrow up to $60,000 to complete 4 years at many state universities. Many take 5 or 6 years to complete — implying borrowing levels of $75,000 to $90,000. Only excessive work that undermines academic performance can lower the loan burden.
PUBLIC universities!
Austerity means LESS federal and state support. Austerity is NOT consistent with investment in human capital.
Another “change” Obama announced is that he isn’t going to push for a tax increase on the rich to pay for his fake “jobs” bill, opting instead for preventive surrender, (as usual), and taking the price tag out of medicare.
Heckuva job
BarryAssholeThis is just a rehash of Bush II’s IBRC or Income-Based Repayment Plan. It’s freakin’ worthless. Unless students who are unable to find jobs in spite of their education are able to flush their debt down the drain by filing bankruptcy, the current abuses of for-profit schools will continue.
This is what happens when education becomes just another profit-making venture. Public education to at least the Bachelor’s Degree level should be free for all who want it. We have the money. Bring the troops home and tax the rich.
once again the real issue is not addressed. Why does it cost so much to go to college? Who really benefits? the student saddled with debt or those that have yet another debt slave. If we did not pay the Fed to issue our currency and allow banks to control the money supply through fractional reserve lending, we could stop this madness. O’s plan is just more BS but I think the people are waking up to the reality of the system they are living in
Do you think if we were on the gold standard college would be less expensive?
Doesn’t even fit into his “I suck less” reelection campaign. More like “I suck just as bad”
Once this guy caved to the deficit hysteria, he doomed higher education for at least a decade. Once he killed the idea that government needed to spend if and when the private sector would not, he doomed education from P through 16. Along with the entire social safety net.
Dumb or duplicitous, he is a fucking disaster.
The cachet effect. So hotdogs can brag about how much they owe, although at this moment complaining has a certain cachet. Things that are free usually wind up as litter.
Good lord! That TPM thread is already spinning up the excuses for yet another Obama presurrender.
Oddly (???), though tuition increased dramatically over the years, enrollments also increased. Auto prices increased dramatically, sales also increased. Housing prices increased dramatically, real estate sales also boomed. Word on the street is that wages have been relatively stagnant all this time. Go figure.
What happened is since Obama negotiates for “the other side” on his own, he put a few items in the Jobs bill for republicans (as if they were ever going to support the bill — I guess to show he’s an adult) So the republicans are taking those two items and putting them into a stand-alone bill — and now Obama is saying he supports their bill. End result is as bad as you say, but somehow even worse to be so bad at negotiating after all this time. And deaf.
All fueled by private debt. We are living with the consequences.
Isn’t that usually regarded as trollspeak?
Private debt is not public debt. Household balance sheets are not the same as the nation’s balance sheet.
Private debt is a huge problem; public debt, not so much.
Education, Health Care should be free in a nation that can kill a citizen half around the world with tax payer money. I just wonder if it might be better use of tax payers money to help the citizens of Amerika first then citizens around the world without killing them? I’m old fashion
Yes. And often these threads include a comment or two from [no names please!] saying Boomers & Yuppies have been living way beyond their means and consequently have no business complaining about their 401K disasters, their home value’s reversal of fortune, &such.
.
Don’t you mean subsidized and paid for by public funds, which come from taxes and tax-based investments?
I think he/she means free access. Common mistake.
That’s him. Asshole. Total. Fucking. Asshole.
Maybe Oblahblah really thinks he’s gonna be welcomed in the cloisters of the heeled as some kind of an elder statesman after his ONE traitorous term. Sad, really.
“Fellas! Hey, fellas! Weren’t we supposed to go sailing today?”
Pathetic.
These are after tax dollars, right? So the teacher in the example has to pay 13+K over ten years, for a 25K loan. But in order to shell out the 13+K, the borrower has to have made over 25K in before-tax income. So the govt. gets the 25K no matter what. Some deal!
It’s a sad state of affairs when going through 4 years of college qualifies as “living beyond your means.”
It isn’t like 18 year olds are going to get a job that allows them to pay $10,000+ per year for schooling(on a pay go basis) in addition to allowing them to also pay for food, clothing, shelter, transportation, and health care. As it is the median income stands at $27,000 and I’m pretty sure that over half of the jobs that provide this level of income aren’t actually “entry level.”
When I broke down numbers with my oldest we figured his schooling would run around $30,000 for a four year degree to get his foot in the door(that’s with 2 years at a community college). That $30,000 doesn’t include the above budget categories. When you break down those categories even on a frugal budget(no car, clothing from thrifts, $25 a week grocery budget)you would need to make a little under $10,000( I went with $800 a month) a year to pay for housing, food, transportation, utilities(you need internet if you are going to a state university. A computer is a requirement here.) and the other items needed for survival.
Needless to say, he’s putting off schooling and staying at home to save. He’s fortunate though not every kid has the benefit of a parent that can or will allow them a few more years of free room and board so they can save. Not every kid is able to find a job that allows him to walk to it.
If anyone has been following and/or cares about the student loan bubble, DO NOT SUPPORT OBAMA’S STUDENT LOAN PLAN. It is an absolute scam and makes student debtors even bigger slaves to the education-industrial cartel (if that is even possible). Every person who is only paying 10% of their income is essentially defaulting on their loans. There is no contractual right to remain on these programs. Interest continues to accrue on Income-based repayment plans AND it will destroy someones credit (not score, but creditworthiness). There is a reason HAMP didn’t work and it’s the same reason this won’t work. Stop empowering the cartel and demand real reform.
I agree – there is already a “waiver” for hardship – as the loan grows with interest. The Income based repayment (IBR) seems a control on outgo, but you are still buried by debt- and for grads before 2012 this new deal does not even apply. I am not sure how this reduces the loan liability, unless the 25 year repayment period at 10% of salary just doesn’t repay the original loan plus interest.
The Public Service Loan Forgiveness Program really does not help a lot as the jobs, other than urban teaching, tend to underpay more than the amount of the forgiveness (at least that was the situation 15 years ago for one of my kids).
We really need to reverse the 2005 law and allow student debt to be taken care of in a bankruptcy.
What other popular petitions are out there that the President may or may not be working on?? Take a look.
The Public Service Loan Forgiveness Program really does not help a lot …
I disagree. Working for a local health department I will never be “rich”, never aspired to be, but having my loans forgiven in 10 years (got 7 to go now) is a helpful benefit and the only way I can see getting them cleared by the time I have to start paying for my own kid’s college costs which likely means more loans. Without this program I would be on the hook for 25 years. Combining this with IBR is especially powerful as it does not matter how much you have paid as long as you have made whatever the required payment is for ten years…and IBR gets you a significantly lower required payment.
“79 percent of Democrats now say they approve of the President’s job performance.”
That is the really bad news. That is twice as bad as the Bush dead-enders, at a time when it was mostly Other People that paid in death/illness/poverty. Obushmo is cutting their jugular, and they approve. No wonder nothing ever gets better.