In an attempt to further ease heavy college debt, President Obama on Monday signed an executive order allowing millions of student-loan borrowers to cap their payments at 10 percent of their monthly income.
Flanked by students and recent graduates who borrowed money to go to school, Obama said the cost of college and burden of student debt are suffocating middle-class families and putting students at an economic disadvantage before they enter the workforce.
“We are here today because we believe that in America, no hardworking young person should be priced out of a higher education,” Obama said.
Most student-loan borrowers already have the option to limit payments to 10 percent of their income under recent legislation and regulations. Obama’s order on Monday extended that option to about 5 million others who were not covered by the previous changes, including those who took out loans before October 2007.
“The past couple of years, we’ve done future students, we’ve done current students, and now we’re trying to take a step back,” Education Secretary Arne Duncan told reporters Monday.
Duncan said the expansion of the payment caps will be “fantastic for the economy” by allowing young people to spend or invest that money elsewhere. But officials said the new regulations are not likely to be implemented until December 2015 at the earliest.
Student-loan debt now tops $1.2 trillion. Obama has publicly endorsed legislation sponsored by Sen. Elizabeth Warren (D-Mass.) that would allow students to refinance both public and private loans at lower interest rates. It would be paid for by closing a tax loophole available to the wealthy.
Obama lashed out at congressional Republicans for opposing the Warren legislation and for voting to cut federal Pell grants, saying they were more apt to support wealthy individuals and companies than middle-class students working hard to get an education.
“If you’re a big oil company, they’ll go to bat for you,” Obama said. “If you’re a student, good luck.”
Casting an eye toward the midterm elections, Obama also told parents and students to watch how senators vote on the bill and urged “consequences” for “irresponsible behavior.”
“I want Americans to pay attention to see where their lawmakers’ priorities lie here,” Obama said. “Lower tax bills for millionaires or lower student-loan bills for the middle class. This should be a no-brainer.”
Sen. Lamar Alexander (R-Tenn.), who opposes the Warren bill, said in an interview that Obama and congressional Democrats are playing politics with the issue. Alexander said he wants bipartisan cooperation on the issue, pointing to a bill proposed last year that would cap interest rates at 8.25 percent.
Alexander said he thinks that the Democratic bill would amount to a taxpayer subsidy of individual student loan debt. He compared the average graduate’s debt level of $27,000 to the price of a car.
“It’s the best investment that a person’s ever likely to make,” Alexander said. “They don’t think twice about it when they buy a car and the car depreciates the day you drive it off the dealership.”
In other steps, Obama ordered the Education Department to renegotiate its contract with loan providers so they will give financial incentives to borrowers who pay their loans on time. The government will also step up its effort to educate borrowers about the options available to them, joining with H&R Block and Intuit to provide information about loan repayment and tax benefits.
The Education and Treasury departments will launch a pilot project that tests the effectiveness of loan counseling programs, and the administration will work with a number of professional and community organizations, including the American Federation of Teachers and the YMCA, to provide information about repayment options.
The average debt per borrower from the class of 2012 ranged from $17,994 in New Mexico to as much as $33,649 in Delaware.