With student loan debt approaching $1 trillion for the first time in U.S. history, President Barack Obama spoke Wednesday of a proposal to help students pay off loans accrued in college.
The initiative would offer students income base payments (IBR) that are 10 percent of a graduate’s discretionary income rather than the current 15 percent, and would forgive all remaining debt after 20 years rather than the previous 25. Obama said during a speech in Denver, he would like to implement the proposal in January, though Congress already passed legislation in March to launch the initiative in 2014.
Those who borrowed from the Federal Family Education Loan program, which was discontinued in July 2010, had to begin borrowing under the Direct Loan program, which meant graduates had two separate payments to make. The initiative will consolidate both payments, reducing interest rates.
According to a White House press release, more than 77,000 current students in Florida would be able to lower their monthly loan payments and more than 243,000 can reduce their interest rates through consolidation.
National Association of Student Financial Administrators spokesman Haley Chitty said only current students can qualify for IBR payments.
“(They) had sort of two different types of loans and had required, in some cases, two different payments, so keeping track of that can be a challenge,” Chitty said. “So, this just helps consolidate those and makes that payment easier. It also presents a half a percentage point discount. Any time you can knock down a percentage point is always a good thing.”
The loans will begin being consolidated in January, he said.
During a White House conference call, Director of the White House Domestic Policy Council Melody Barnes said the initiative will help the economy.
“Some borrowers may struggle to manage their bills and support their families,” she said. “This announcement is part of a series of executive actions to put Americans back to work and to strengthen the economy because we simply can’t wait for congressional Republicans to act.
“First, the administration is moving forward with a new pay- as-you-earn proposal that will reduce monthly payments for more than 1.5 million current college students and borrowers,” she said. “But President Obama realized that many students need relief much sooner than that, that’s why we’ve initiated the new pay as you earn proposal … to cap their loan payment starting next year … in 2012.”
U.S. Secretary of Education Arne Duncan said during the conference call that the consolidation of loans will also help those who have already graduated.
“The folks who have been struggling with long-term loans will have opportunities here, as well as after January when we move to loan consolidation,” he said. “They will be able to reduce their interest payments by half a percent going forward. So this is not just for existing students, this is for those out there who have graduated from college.”
During his speech, Obama said the cost of tuition is increasing quicker than inflation, causing students to take out more loans. According to USA Today, students are borrowing twice as much compared to a decade ago.
“How do we make college more affordable and how do we make sure you are burdened with less debt?,” he said during his speech. “We want you in school, but we shouldn’t saddle you with debt when you are starting off. It’s never been more important, but let’s face it, it’s also never been more expensive. Last year, graduates who took out loans left college owing an average of $24,000. Student loans debt has now surpassed credit card loan debt.”