President Obama, finishing up a three-day tour through western U.S. states, announced a new plan Wednesday to ease the burden of student loans on Americans in debt.
Under these new measures, those who have two kinds of student loans – direct federal loans and government-backed private loans – would be able to consolidate them with a 0.5 percent decrease in their interest rate. Furthermore, the plan expands the government’s current income-based repayment program, which currently allows debtors to pay 15 percent of their monthly income and have their loans forgiven after 25 years. The program was scheduled to lower the bar in 2014 to 10 percent of discretionary income with loan forgiveness after 20 years, but Obama’s executive action would allow those new payment caps to go into effect in 2012 instead.
The move is part of Obama’s “We Can’t Wait” campaign, an effort to usher in executive actions to relieve financial burdens and spur the economy as Congress stalls on passing the president’s American Jobs Act. On Monday, Obama also announced plans to expand the government’s mortgage refinancing program to help “underwater” mortgage owners more easily pay off their debts.
Observers have noted that both the mortgage refinancing and student debt plans only offer modest relief for the bulk of indebted Americans; the Atlantic calculates that the average student loan borrower would save a mere $10 a month under the changes. Clearly, the newly announced measures fall far short of the kind of sweeping changes that many Americans are hoping for – but as long as gridlock remains between Congress and the president, sweeping change will likely be difficult to come by.
College tuition throughout the country has risen by an alarming rate over the past decade, and the economic downturn has made it much more difficult for recent college graduates to attain jobs with salaries that give them the ability to keep up with monthly loan payments. As student debt approaches the $1 trillion mark, having surpassed the aggregate amount of credit card debt in America earlier this year, debt-burdened Americans have begun to more vociferously rally against rising tuition costs, high interest rates and lack of employment. A study by the College Board released today found that tuition at public universities rose by 8.3 percent this year alone — twice the rate of inflation — while tuition at non-profit private universities rose by 4.5 percent. Student debt continues to be one of the most prominent narratives of the Occupy Wall Street protests, while some analysts have expressed fears that student debt may be the next subprime mortgage crisis.
“In the end, this is not about growing the size of government or relying on the free market,” Obama said in his speech, delivered in Colorado Wednesday afternoon, “because it’s not a free market when we have a student loan system that’s rigged to reward private lenders without any risk. It’s about whether we want to give tens of billions of tax dollars to special interests or whether we want to make college more affordable for eight-and-a-half million more students. I think most of us would agree on what the right answer is.”