President Obama extended eligibility
for an income-based monthly federal-student-loan repayment program
By executive
order, President Obama extended on Monday afternoon eligibility for an
income-based monthly federal-student-loan repayment program to all holders of
student debt. The move expands the number of student-loan debtors qualified for
the monthly pay cap by about five million.
Weighed down
by more than a trillion dollars of student loan debt, millions of young
Americans are struggling to find jobs their costly college educations were
supposed to provide, which is why President Barack Obama is expected to
announce Monday an expansion of current programs aimed at reducing the burdens
of federal student loan borrowing.
The plan
would broaden the number of young student loan debtors who would qualify for
monthly payments capped at 10 percent of discretionary income under the “Pay As
You Earn” (PAYE) program. Remaining debt for many of these borrowers also would
be forgiven after 20 years for private sector workers and 10 years for
government workers and employees of some nonprofit organizations.
The details
are similar to those outlined in the White House’s 2015 budget proposal (pdf)
at a cost of $7.3 billion between 2015 and 2019. The president will be
answering questions on Tuesday about student-loan relief submitted though the
Tumblr microblogging site.
Under the
current five-year-old Income-Based Repayment Plan, federal student loans can be
adjusted annually based on changes to income and family size and are capped at
15 percent of income after basic costs of living are paid, known as
discretionary income.
Starting
next month borrowers with financial hardship will be eligible for the
10-percent monthly repayment cap. Obama’s proposal would remove the financial
hardship requirement.
Federal
student loan debtors who began making debt payments after October 2007 are
eligible for some debt forgiveness under the Public Service Loan Forgiveness
program. Civil service agencies can also repay federal student loan debt as a
recruitment and retention incentive.
The Education
Department estimates that the number of debtors that joined the Income Based
Repayment Plan increased 24 percent to more than 1.6 million in the first
quarter.
“The
recession brought a sudden reversal in this relationship. As house prices fell,
homeownership rates declined for all types of borrowers, and declined most for
those thirty-year-olds with histories of student loan debt,” according to an
article on the New York Fed’s blog “Liberty Street Economics.”
In the
article, the Fed’s senior economist Meta Brown points out that in the years
after the 2007-2009 Great Recession, young Americans without student loan debt
were more likely to have a home mortgage by the age of 30 than those with
student loan debt. Before that, young Americans with student loan debt were
more likely to take out a mortgage by the age of 30 because they tended to
out-earn Americans without student-loan debt.
But now more
college graduates are working in jobs that don’t require college diplomas and
are earning less, according to a Fed study from earlier this year (pdf).
“In recent
years, the economy has grown annually at 2 percent or so,” an editorial in
Saturday's New York Times said, which points out that young Americans who have
entered the workforce since the end of the last recession are facing increased
economic hardship. “That’s too slow to make up the current shortfall of nearly
seven million jobs, let alone to absorb new graduates or push up wages in jobs
that do exist.”
In the first
quarter, total U.S. student loan debt increased by $31 billion, breaking
through $1 trillion for the first time, according to the Fed’s Household Debt
and Credit Report in May.
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