- Ruby Wallau/Daily
By Shoham Geva, Summer Managing News Editor
Published June 11, 2014
Five million borrowers became eligible to have payments lowered on their student loans Monday after President Obama signed a new executive order expanding access to a previously existing government program that decreased monthly payments for low-income individuals.
More like this
The President also announced measures to renegotiate the financial incentives for on-time repayment, reduce paperwork for active duty military with loans who receive a 6% interest cap and increase awareness of reduced-payment plans.
A White House press release stated making college degrees more affordable and accessible has been a longtime priority for the President.
“As part of his year of action to expand opportunity for all Americans, the President is committed to building on these efforts by using his pen and his phone to make student debt more affordable and more manageable to repay,” the release read.
The order specifically addressed the Pay As You Earn repayment plan, which previously only applied to borrowers who received at least one disbursement of a federal direct loan during or after 2011, and first borrowed after or in 2007 . The plan limits monthly payments to 10 percent of an individual’s discretionary income, which must be lower than the monthly payment under a standard federal repayment plan. It also limits the amount of interest that can capitalize — the practice of adding unpaid interest to the original amount of the loan, which can raise both minimum monthly payments and interest — to 10 percent of the original loan and allows individuals who make qualifying payments to the plan for 20 years to have any remaining debt forgiven.
Following implementation of the order, which is expected to occur in 2015 after the U.S. Department of Education completes the process of modifying its regulations, low-income individuals who borrowed before 2007 or stopped borrowing before 2011 will also have access to the PAYE repayment option. Previously, these borrowers were eligible for the income repayment plan, which capped payments at 15% of discretionary income and offered loan forgiveness after 25 years.
As of 2011-2012, 38 percent of University students received some form of federal direct loan, according to the National Center for Education Statistics.
The data doesn’t delineate when borrowers first took out a loan, which is necessary to calculate new eligibility, but a report from the White House Council of Economic Advisers and Domestic Policy Council released Tuesday stated the state of Michigan as a whole has almost 193,000 individuals who could benefit from the executive order.
In general, college affordability has become a pressing concern for Michigan residents. The state currently ranks as 45th in the nation for college affordability, according to a yearly report by College Board, and a May report from the Center for Michigan found that college affordability is a top concern for people in the state.
Democratic Congressional candidate Debbie Dingell, who has made student loans an area of focus in her campaign and is also the chair of Wayne State University’s Board of Governors, said the impact of college affordability has become a growing issue in the state.
“I’ve been on the Wayne State board for eight years,” Dingell said. “Every single year, it seems like it’s becoming more challenging and more difficult and harder to afford a higher education. And every single day, I am meeting young people who are graduating with staggering debt.”
She added that while college affordability is a nationwide issue, in Michigan it may be particularly pressing because of trends in public university funding, which has been dropping since the early 2000s and was hit particularly hard when Governor Rick Snyder instituted a 15% percent cut in his FY2012 budget.
“It used to be that in Michigan, higher ed was respected as the top of the country,” she said. “We stopped investing in higher education."
During Monday’s announcement, the President also expressed support for legislation in the U.S. Senate that would allow borrowers to refinance their student loans at lower interest rates.
The legislation, which would benefit 963,000 Michigan borrowers according to the White House report, was blocked in the Senate Wednesday following a Republican filibuster.
However, Mark Kantrowitz, senior vice president of Edvisors, which manages several financial aid and college websites, said both initiatives may have a limited impact overall because they don’t address the root causes, such as the decreasing amount of non-loan federal money available for students that lead students to take out so many loans.
“If we were to double the average Pell Grant, the debt would go down," Kantrowitz said. “And that’s the real problem — there’s too much debt at graduation. The payment plan is a safety net, but the real problem is the debt in the first place.”