Obama Looks to Bypass Congress to Provide Student Loan Relief
Obama administration officials yesterday announced two initiatives aimed at lowering monthly student loan payments for borrowers struggling to repay their loans. The announcement is part of a series of executive actions the White House seeks to implement without Congressional approval.
Under the administration’s plan:
- Students with both Federal Family Education Loans (FFEL) and Direct Loans will be offered an incentive to participate in a special consolidation into the Direct Loan program
- More generous income-based repayment (IBR) terms will be fast-tracked to become effective in 2012 instead of 2014
- The U.S. Department of Education will partner with the Consumer Financial Protection Bureau (CFPB) to create a model financial aid disclosure form
Currently, nearly 6 million students have loans from both FFEL and DL servicers. The administration plans to offer repayment incentives for students with split servicers if they move all of their loans over to DL. Specifically, students would be able to receive up to a 0.5 percent reduction to the interest rate on some of their loans. Students would be able to do this beginning January 1, 2012 and through June 30, 2012. The Administration has referred to this initiative as a "special" consolidation where students will be able to keep the terms and conditions of their initial loans. The new plan would be available to students who are currently in school and receive a federal loan in 2012.
In 2010, Congress passed changes to the IBR program to limit monthly payments to 10% of discretionary income (down from the current 15%) and forgiving remaining debt after 20 years (down from the current 25 years). The Obama administration hopes to implement these changes, deemed the "Pay As You Earn" plan, two years ahead of schedule, beginning in 2012. The Pay As You Earn plan would not override the current IBR program, but would instead operate separately, though very similarly.
The Institute for College Access and Success (TICAS) estimates that roughly half a million borrowers are currently taking advantage of the IBR program, but that hundreds of thousands more are eligible and not taking advantage of the program.
The IBR program bases monthly payments on any income above 150% of the poverty line. So a borrower living alone would pay 10% of anything earned above $16,335 (according to the 2011 poverty level). Unemployed borrowers with no income could owe no monthly payments and still be considered eligible for loan forgiveness after 20 years.
Know Before You Owe
The administration also announced that the CFPB and the Department of Education have teamed up to launch a new “Know Before You Owe” project aimed at creating a model financial aid disclosure form, which colleges and universities could use to help students better understand the type and amount of aid they qualify for and easily compare aid packages offered by different institutions. The CFPB is soliciting feedback from college students and their families on how to improve the form. The CFPB's website features an online ranking tool to provide the public with an opportunity to weigh in on the financial aid shopping sheet, which is not complete or final. Details of the tool remain unclear, but they are expected to be revealed later today and analyzed in tomorrow's Today's News.
President Obama is scheduled to announce the administration’s plans in a speech today at the University of Colorado’s Denver campus. NASFAA will release more details about the plan after it has been officially unveiled.