Posted Jun 10, 2014 12:45 pm CDT
President Barack Obama has signed an executive order expanding a 2010 law that capped student-loan repayments for newer government-backed loans at 10 percent of the borrower’s monthly income.
Obama announced his action on Monday, citing his own experience with law school loans paid off just 10 years ago. The goal is to implement the expansion in December 2015, after new rules are drafted. The New York Times and Politico have reports.
Currently the 10 percent cap, part of the Pay as You Earn program, is not available to those with older loans, according to a fact sheet. Monthly payments are based on a sliding scale, and any remaining balance is forgiven after 20 years of payments, or 10 years for those in public service jobs.
Obama’s order would expand Pay as You Earn to include nearly 5 million additional federal direct student loan borrowers. Pay as You Earn is more generous in its loan caps than a different Income Based Repayment program that currently applies to all borrowers with federal student loans, according to Bloomberg Business Week. IBR caps payments at 15 percent of discretionary income.
The expansion of Pay as You Earn is good news for law students and grad students who take on the most debt, Bloomberg Business Week says.
Obama also backed a new bill that would allow 25 million student borrowers to refinance their loans at lower rates.
In his announcement, Obama cited his own student loans, taken out at a time when the cost of higher education was less expensive.
“Here’s the problem,” Obama said. “At a time when higher education has never been more important, it’s also never been more expensive. Over the last three decades, the average tuition at a public university has more than tripled. At the same time, the typical family’s income has gone up just 16 percent.
“Michelle and I both went to college because of loans and grants and the work that we did. But I’ll be honest with you—now, I’m old, I’ve got to admit—when I got out of school, it took me about a year to pay off my entire undergraduate education. That was it. And I went to a private school. …
“Now, when I went to law school it was a different story. But that made sense because the idea was if you got a professional degree like a law degree, you would probably be able to pay it off. And so I didn’t feel sorry for myself or any lawyers who took on law school debt. …
“But compare that experience just half a generation, a generation ago to what kids are going through now. These rising costs have left middle-class families feeling trapped. …
“Because of law school, we only finished paying off our own student loans just 10 years ago.”