WASHINGTON – President Barack Obama announced plans Wednesday to reduce federal loan payments for some college students – a program the White House says could help more than 50,000 Arkansans.
“When a big chunk of every paycheck goes towards student loans instead of being spent on other things, that’s not just tough for middle-class families, it’s painful for the economy and it’s harmful to our recovery because that money is not going to help businesses grow,” Obama said at the University of Colorado.
Starting in 2012, low-income borrowers will be able to cap their federal student loan repayments at 10 percent of their discretionary income. Any remaining loans they still have after 20 years will be forgiven. This is an acceleration of an existing program called “Pay As You Earn.” Currently, low-income borrowers have 25 years to pay off loans at a 15 percent income cap. The lower cap had been scheduled to go into effect in 2014.
The president’s plan also allows borrowers to consolidate old Federal Family Education Loans and federal direct loans. The Department of Education says this will allow for a single payment plan, as well as up to a 0.5 percent interest rate reduction.
“More than 1.6 million student loan borrowers will see their monthly payments fall under this plan, and this has the potential to reduce the loan payments of current students as well as new graduates by hundreds of dollars each month,” said Secretary of Education Arne Duncan during a conference call Tuesday.
The White House estimates that more than 12,000 current students in Arkansas will be able to lower their monthly payments through the new program, while more than 41,000 borrowers will be able to reduce interest rates through consolidation.
“College graduates are struggling with high student loan debt while also facing a bleak job market,” said Sen. Mark Pryor, D-Ark. “I’m sure they could use a little relief in managing these loans.”
Yet many Republicans have already voiced skepticism over the president’s authority to make the changes.
“As someone who relied heavily on student loans for my education and am still repaying them, I understand their importance,” said Rep. Tim Griffin, R-Ark. “But once again the president has bypassed Congress instead of working with us to reduce the loan burden on students and make sure jobs are waiting for them upon graduation.”
Rep. Virginia Foxx, R-N.C., chair of the House subcommittee on Higher Education, said Wednesday in a phone interview that the president should be focusing on job creation and economic growth. The new repayment plan, she said, isn’t going to put more money into the economy.
“The last few times anybody has tried that technique it hasn’t done much because most of the time people are getting more money, they’re paying down their credit card debt,” Foxx said.
Meanwhile, the cost of college tuition is climbing. According to new College Board data, the average price of in-state public tuition nationwide increased 8.3 percent since last school year, while private college or university tuition rose 4.5 percent—both largely affected by increases in tuition prices in California.
Obama tried to empathize with students at the University of Colorado this morning, reminding them that he and the first lady had $120,000 worth of student loan debt combined.
“I’ve been in your shoes. We did not come from a wealthy family,” he said.
Borrowers looking for more information about the new repayment program can contact the Department of Education, 1-800-4-FEDAID, or visit studentaid.ed.gov.