On June 9, President Barack Obama issued a presidential
memorandum to permit nearly five million federal student loan borrowers with
outstanding student loan balances to cap their monthly payments at 10% of their
incomes. The memo requires the Secretary of Education to propose new
regulations in the next year aimed at increasing the number of students who are
eligible to limit repayments of their Federal Direct Loans through an expansion
of the Administration’s Pay As You Earn (PAYE) program. The new repayment
options are expected to take effect by Dec. 31, 2015.
Most students who currently take out loans are eligible to participate
in the PAYE program. The new initiative would allow students who began
borrowing prior to October 2007 and have not received any disbursements on
their Direct Loans since October 2011 to also benefit from the PAYE option.
Meanwhile, on June 11, a bill sponsored
by Sen. Elizabeth Warren (D-MA) that would have permitted borrowers to refinance
their debt at the current lower interest rate of 3.86% was defeated on the floor
of the Senate, 56 to 38. Opponents said the bill created a needless subsidy.
Democrats vowed to reintroduce the idea when the Higher Education Act is
reauthorized in 2015.
to the White House, tuition at a public, four-year college has
more than tripled in the past three decades while family income has risen “only
modestly.” The result: more than seven out of 10 people who complete a
bachelor’s degree graduate with debt, amounting to $29,400 on average.
Obama’s memo also calls on the Secretary of Education Arne Duncan to
put in place new strategies to make sure struggling borrowers have information
about the best repayment plans on the market in order to avoid default.