Taking Action to Reduce the Burden of Student Loan Debt
By Roberto Rodriguez
Thank you for taking the time to participate in the “We the People” petition process. We launched this online tool as a way of hearing directly from you, and are pleased that you have responded by presenting this idea.
We agree that reducing the burden of student loans is an effective way to stimulate the economy and save taxpayer dollars. That's why we're excited to announce a new policy that speaks to the concerns expressed in this petition.
First some background. About two-thirds of college graduates have taken out loans to help pay for their education, with an average student borrower owing over $23,000. This debt is particularly burdensome for graduates who enter lower-paying careers, suffer setbacks such as unemployment or serious illness, or fail to complete their degrees.
Our Administration recognizes that higher education is a needed investment to compete for the jobs of the twenty-first century, but acknowledges the great financial burden that it places on many American students and families. As an Administration, we are committed to making college more affordable so that all Americans can gain access to an education that will enable them to succeed in a global economy increasingly based on knowledge and innovation. As President Obama has stated, “in the United States of America, no one should go broke because they chose to go to college.”
The federal student loan program allows students the option to invest in their own future and this option is one that requires responsibility on the part of students as well as institutions of higher learning. We know many borrowers across the nation are struggling to keep up with student loan payments. That’s why we have taken action to help reduce monthly loan payments when they become too burdensome, while at the same time keeping the student loan program fiscally sound so we can invest in the next generation of students.
Our income based repayment (IBR) policy is a prime example of doing just that: it allows students to repay student loans based on the income they make, rather than the standard 10-year repayment plan. Currently, IBR allows hundreds of thousands of borrowers to cap their loan payments at 15% of their discretionary income and have all remaining debt forgiven after 25 years of payment. This program allows students to reduce their loan payments by hundreds of dollars a month in many cases, while keeping the loans in good standing. For example, a student borrower with an income of $30,000 and a loan debt of $25,000 will see their monthly student loan payments reduced by $116.
To give students additional help, Congress enacted a proposal in 2010 to have IBR borrowers cap their payments at 10% instead of 15% and have all their debt forgiven after 20 years instead of 25 years. These changes were scheduled to go into effect in 2014. However, the Administration is announcing today that these benefits will go into effect two years earlier, in 2012, to provide an even greater benefit to students in college now.
We are also announcing that borrowers can now consolidate their loans from the Direct Loan (DL) program and the Federal Family Education Loan (FFEL) program into one loan. This will give borrowers the convenience of a single payment to a single lender – which makes it less likely that borrowers will default. Borrowers would also receive up to a 0.5 percent reduction to their interest rate, which means lower monthly payments.
As President Obama has explained, American students face a paradox: “at the very moment it's never been more important to have a quality higher education, the cost of that kind of that kind of education has never been higher.” Over the past three decades college tuition has grown 10 times faster than a typical family's income, making higher education unattainable for many; however, more than 60% of jobs in the next decade will require more than a high school diploma. It is more important than ever for Americans to get a good education to stay ahead in an increasingly global economy.
If we want to remain competitive as a nation, we must continue to create ways for all Americans to afford higher education. In addition to capping student loan repayments, the Healthcare and Education Reconciliation Act helped increase the maximum Pell Grant to $5,500 and saved taxpayers billions by cutting out banks as middlemen. Because of this reform, there will be over 800,000 additional Pell Grants awarded over the next 10 years and the value of Pell Grants will be able to keep up with additional college costs.
We know that these steps don’t solve all our problems in higher education. There is still more work to be done to make it possible for every American to earn a quality education. But enormous progress has been made. And by continuing to raise your voices and call for change, you will help to open the doors of higher education to all Americans.
Roberto Rodriguez is Special Assistant to the President for Education Policy