President Obama announced a series of executive actions Monday on federal student loans, including a memorandum directing the expansion of the Pay As You Earn program, which caps borrowers' loan payments at 10 percent of their income.
By December 2015, Pay As You Earn will be available to those who borrowed before October 2007 or stopped borrowing by October 2011, an estimated five million additional individuals. The program currently is not available to students with older loans.
As The Chronicle of Higher Education pointed out, enrollment in income-based repayment plans has remained low, at roughly 11 percent of student loan borrowers. In an effort to increase participation, the administration has been conducting an aggressive outreach campaign to inform borrowers of their options.
The president's plan also calls for the Department of Education to give additional financial incentives to companies that service federal loans to help borrowers avoid delinquency or default. The Education and Treasury departments will work with the nation’s largest tax-preparation firms to help ensure that borrowers are aware of student loan repayment options and higher education tax credits.
"President Obama's decision to expand the "Pay As You Earn" student loan repayment plan is an important step that will make several million more Americans eligible for this generous option," said ACE President Molly Corbett Broad in a statement. "In addition, I applaud the president's commitment to improving customer service for all student loan borrowers. While today's step is valuable, broad action to lower the cost of student loans and improve repayment options will require action by both Congress and the administration. We look forward to working with them to accomplish this goal."
The executive order coincides with Sen. Elizabeth Warren’s (D-MA) introduction of a revised version of the Bank on Students Emergency Loan Refinancing Act (S. 2292), which would allow individuals with student loan debt to refinance their federal and private student loans at the rates set by Congress last year for new borrowers.
ACE and 11 higher education associations sent a letter of support for the bill to Warren today. The president endorsed the measure in his weekly address Saturday.
Senate Democrats will attempt to bring the measure to the floor for a vote on Wednesday. However, doing so will require that they muster at least 60 votes to begin debate on the measure, and that prospect is uncertain. One of the potential roadblocks is that it would be paid for by enacting the so-called Buffett Rule, which would apply a minimum tax rate of 30 percent on individuals making more than a million dollars a year.
At a Senate Budget Committee hearing last week, Committee Chair Patty Murray (D-WA) said student loan debt has lasting repercussions for young adults as they start their careers and holds back the economy by limiting borrowers’ economic activity. She called on Congress to ease their burden by passing legislation allowing borrowers to refinance their federal student loan debt at today’s rates.
The Senate Banking Subcommittee on Financial Institutions and Consumer Protection also held a hearing last week to hear testimony about the servicing of student loans and the intricacies of repayment options.