Seeking to shore up support among cash-strapped college graduates and students struggling with rising tuition costs, President Barack Obama is outlining a plan to allow millions of student loan recipients to lower their payments and consolidate their loans.
Outside of mortgages, student loans are the No. 1 source of household debt. Young voters were an important bloc in Obama’s 2008 campaign, and student loan debt is a common concern among Occupy Wall Street protesters.
Obama’s announcement, made Oct. 26 in Denver, came the same day a new report was released by the College Board. It shows average in-state tuition and fees at four-year public colleges rose $631 this fall, or 8.3 percent, compared with a year ago.
Nationally, the cost of a full credit load has passed $8,000, an all-time high.
The White House said Obama will use his executive authority to provide student loan relief in two ways.
First, he will accelerate a measure passed by Congress that reduces the maximum repayment on student loans from 15 percent of discretionary income annually to 10 percent.
The White House wants it to go into effect in 2012, instead of 2014. In addition, the White House says the remaining debt would be forgiven after 20 years, instead of 25. About 1.6 million borrowers could be affected.
Second, he will allow borrowers who have a loan from the Federal Family Education Loan Program and a direct loan from the government to consolidate them into one loan.
The consolidated loan would carry an interest rate of up to a half percentage point less than before. This could affect 5.8 million more borrowers.
Education Secretary Arne Duncan told reporters on a conference call that the changes could save some borrowers hundreds of dollars a month.
“These are real savings that will help these graduates get started in their careers and help them make ends meet,” Duncan said.
The White House said the changes will carry no additional costs to taxpayers.
Jean Main, director of student financial aid services at the University of Connecticut, where about two-thirds of graduates leave with an average student loan debt of $21,257, called the announcement good news.
“Of course this will help. I think it will help students all over. I think it’s a broad-reaching plan that will have broad-reaching impact,” said Main. She said the biggest impact will probably be for students who graduate into low-paying professions or have trouble finding immediate employment.
Roberta B. Willis, House chair of the state’s Higher Education and Employment Advancement Committee, also welcomed the news, especially for students struggling with record debt when they graduate.
“This plan will help them manage their finances when they are first starting out,” she said.
Others were less impressed. Vince Sampson, president of the Education Finance Council in Washington, said the plan merely moves loans from the private sector to the federal government and is too limited.
It gives borrowers just months to sign up, restricts eligibility to borrowers who have not defaulted on their loans and limits the 10 percent discretionary earnings payment cap to students currently enrolled in school who took out their first loan in or after 2008 and will take out another loan in 2012.
“The proposal does little for borrowers struggling to repay student loans in today’s distressed job market [and] does not address the real student debt problem: rising tuition and the lack of well-paying jobs,” Sampson said.
Last year, Congress passed a law that lowered the repayment cap and moved all student loans to direct lending by eliminating banks as the middlemen.
Before that, borrowers could get loans directly from the government or from the Federal Family Education Loan Program; the latter were issued by private lenders but basically insured by the government. The law was passed along with the health care overhaul with the anticipation that it could save about $60 billion over a decade.
Today, there are 23 million borrowers with $490 billion in loans under the Federal Family Education Loan Program. Last year, the Education Department made $102.2 billion in direct loans to 11.5 million recipients.
Meanwhile, the Education Department and the Consumer Financial Protection Bureau announced a project Tuesday to simplify the financial aid award letters that colleges mail to students each spring.
A common complaint is that colleges obscure the inclusion of student loans in financial aid packages to make their school appear more affordable, and the agencies hope families will more easily be able to compare the costs of colleges.
Separately, James Runcie, the Education Department’s federal student aid chief operating officer, told a congressional panel Tuesday that the personal financial details of as many 5,000 college students were temporarily viewable on the department’s direct loan website earlier this month.
Runcie said site was shut down while the matter was resolved, and the affected students have been notified and offered credit monitoring.
Copyright 2011, The Associated Press, with additional reporting by the Connecticut Post (Bridgeport, Conn.). Visit the Connecticut Post online at www.ctpost.com. Distributed by MCT Information Services.
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