June 9, 2014
President Obama announced today a new executive order aimed at easing student borrowers’ debt loads by capping repayments at 10 percent of their monthly income. Obama also made student loans the focus of his weekly address on Saturday, saying he’d be taking action this week.
The executive order will expand on a 2010 law, the Bipartisan Student Loan Certainty Act, that capped borrowers’ repayment. The law left a hole in eligibility for people with older loans — anyone who borrowed before October 2007 or stopped borrowing by October 2011, which is approximately 5 million borrowers — were not eligible for the cap. The executive order will close the hole, but relief, however, would not be available until December 2015. The time is needed for the Department of Education (ED) to propose and put new regulations into effect.
In addition, the President will announce that ED will renegotiate contracts with companies that service federal loans to give them additional financial incentives to help borrowers avoid delinquency or default. Further, both ED and Treasury will work with the nation’s largest tax-preparation firms, H&R Block and Intuit Inc., to ensure that borrowers are aware of repayment options and tax credits for college tuition.
Finally, the President is expected to urge the swift passage of S 2292, the Bank on Students Emergency Loan Refinancing Act. The measure introduced by Senator Elizabeth Warren (D-MA) last week and has been championed by people like Senators Murray and Cantwell. The measure would would allow an estimated 25 million Americans to refinance student loans, federal and private, at lower interest rates. Reduced interest payments would cost the government about $58 billion over 10 years, according to the Congressional Budget Office, but the legislation would raise $72 billion by imposing a new tax on some high-income individuals.
Fact Sheet on the Legislation Available here.
Bill Text Available here.
The Senate is expected to consider Warren’s bill (as S 2432) this week, but the measure has little chance of consideration by the House.