White House officials announced a new presidential initiative aimed at reducing the burden of student loans, which have overtaken credit cards as the nation’s largest source of debt.
Domestic Policy Council Director Melody Barnes and Education Secretary Arne Duncan held a conference call with reporters late Tuesday afternoon to discuss the proposal, which calls for allowing borrowers with two kinds of student loans–publicly-issued direct loans and privately-issued Federal Family Education Loans–to consolidate their debts into a single government-backed loan, and to lower their interest rates, beginning in January. Barnes said that 5.8 million people, many of whom are struggling to make their payments, could qualify for consolidation and rate reduction.
In addition, the president–who, Barnes noted, spent 10 years paying off his own student loans–wants to accelerate the so-called “Pay As You Earn” policy. Passed last year, that law lets borrowers reduce their monthly student loan payments to 10 percent of their discretionary income, starting in 2014. Under the new plan borrowers can start doing this in 2012. After 20 years of payments, the balance of their debt would be forgiven; the previous term was 25 years. An estimated 1.6 million college students could be affected.
According to a White House statement, “The announcement is part of a series of executive actions to put Americans back to work and strengthen the economy because we can’t wait for Congressional Republicans to act.” When asked how the new measures might help to create jobs, the White House officials were unable to articulate a clear connection. Barnes spoke of allowing people to pursue socially valuable, lower-income positions, such as teaching or public service, and to start families earlier. But neither she nor Duncan took the opportunity to claim that reduced monthly payments by borrowers would act as an economic stimulus by increasing consumption.
The plan offers no relief for borrowers who have already gone into default on their student loans.
Duncan directed current students and borrowers to call 1-800-4-Fed-Aid, or visit studentaid.ed.gov, to learn more.