Washington Update

Obama Extends Educational Loan Repayment Option to More Borrowers

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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. 

According 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. 

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