Obama Announces Executive Action on Student Loans

President Obama speaking Monday on the Presidential Memorandum on student loans. (Screengrab from C-Span video)

Obama Announces Executive Action on Student Loans

Action recognizes "that student debt is something that hits households well beyond college age," says Demos.

President Barack Obama on Monday announced a series of executive steps he was taking to tackle the $1.2 trillion student debt crisis, including the expansion of a federal program that puts a cap on monthly loan payments.

The first of the three steps outlined was the expansion to those with older loans of the Pay As You Earn program, which allows those holding federal student loans to cap their monthly payments at 10 percent of their income. After 20 years of payments, the program forgives any remaining debt.

Welcoming the move, Independent Vermont Sen. Bernie Sanders stated, "Millions of American families are struggling to repay student loans. Capping payments at no more than 10 percent of income is one way to help."

Mark Huelsman, Senior Policy Analyst with the public policy organization Demos, writes that the executive action recognizes "that student debt is something that hits households well beyond college age. Around a third of student debt is held by those over 40, and delinquency rates generally rise by age."

Yet the Pay As You Earn program as well as other Income-Based Repayment(IBR) options can be a losing situation for borrowers, he adds. Huelsman explains that "because it lowers monthly payments, it can increase the total amount a borrower pays over the life of the loan, since interest still accrues." This fact underscores the need for those holding student loan debt to be able to refinance their loans at better rates, he adds. That ability, though, must come from Congress.

Such a proposal is expected to be heard in the Senate this week. Sen. Elizabeth Warren's "Bank on Students Emergency Loan Refinancing Act" would allow student loan holders to refinance at 3.68 percent.

Obama's Presidential Memorandum also includes two other steps: "improving communication strategies" to help loan holders avoid default, and renegotiating with loan servicers like Sallie Mae to help prevent defaults.

A recent analysis by the Institute for College Access & Success' Project on Student Debt found that the average amount of student debt held by a borrower in the class of 2012 was nearly $30,000.


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