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’s Denver campus.
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 have after 20 years will be forgiven. This is an acceleration of a 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,” Secretary of Education Arne Duncan said 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.
For example, a nurse who is earning $45,000 per year and has $60,000 in student loans pays $690 per month under the standard repayment program. Under a 15 percent “Pay as You Earn” discretionary income cap, this nurse would be required to make $358 per month in loan repayments. Under the new 10 percent income cap, the nurse would have to pay only $239 per month if enrolled in the program.
“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 about 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 .,chairman of the House subcommittee on Higher Education, said Wednesday in a telephone 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 instate 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.
At the University of Colorado on Wednesday, Obama said he empathized with students, reminding them that he and the first lady once had a combined $120,000 worth of student-loan debt.
“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 at (800) 433-3243 or at studentaid.ed.gov.
Lauren Chooljian is a graduate student reporting for Medill News Service in Washington.
Front Section, Pages 1 on 10/27/2011