President Obama announced Wednesday that he will authorize changes in federal policy to make college loans more affordable and easier to repay for millions of economically trapped borrowers.
The president’s plan, which he will impose by executive authority, is aimed at addressing a sector of the credit market that has become increasingly problematic in the bad economy and that gained renewed attention through the Occupy Wall Street movement, which has made student-loan relief one of its objectives.
The initiative was also an effort to reach out to a voting bloc that was crucial to Obama’s winning 2008 coalition, a bloc that he will need next year as well.
Obama told thousands of cheering students at the University of Colorado’s Denver campus that his administration will no longer wait for Congress to respond to the rising financial burden of higher education. The president also told the students that he and first lady Michelle Obama empathize with their plight.
“We were paying more on our student loans than we were paying on our mortgage each month,” he said. “How do we make college more affordable, and how do we reduce your burden?”
The president’s “Know Before You Owe” plan would allow some college graduates to limit federal student loan repayments to 10 percent of discretionary income starting in January, two years before the cap was due to take effect under federal law.
The accelerated “pay as you earn” option could benefit up to 1.6 million low-income borrowers and reduce their payments by as much as a couple of hundred dollars a month, administration officials said.
All remaining debt on the federal loans would be forgiven after 20 years — five years earlier than under current law. To qualify, borrowers must have student loans in 2012 and have had loans in at least one of the previous four years.
In addition, nearly 6 million borrowers who have more than one federal student loan will be allowed to consolidate their debt, in some cases reducing their interest rates by up to half a percentage point, White House officials said.
Obama said the plan — which administration aides emphasized will be paid for by the elimination of federal subsidies to private banks after the loans are consolidated — has the potential to boost the economy.
“Student loan debt has now surpassed credit card debt for the first time ever,” Obama said. “And when a big chunk of every paycheck goes towards student loans instead of being spent on other things, that’s not just tough for middle-class families, it’s painful for the economy and it’s harmful to our recovery because that money is not going to help businesses grow.”
Education advocates hailed the announcement as a modest first step toward addressing the increasing costs of higher education, but they warned that more must be done as interest rates on federal student loans are set to double in July.
“The administration is clearly acting in the interest of students, and this is a good thing in the current environment,” said Terry Hartle, senior vice president of the American Council on Education. “But the fact remains that the biggest student loan issue facing us is the doubling of interest rates in eight months.”
Obama’s announcement, made in a battleground state that he carried in 2008, came on the final stop of a three-day West Coast swing. During the trip, he raised money in Nevada and California for his reelection campaign and announced two initiatives to provide mortgage relief to underwater homeowners and help military veterans find employment.
The initiatives are part of the White House’s latest strategy — punctuated with the catchphrase “We can’t wait” — aimed at pressuring Republicans to support provisions in the president’s $447 billion American Jobs Act, which remains stalled in Congress.
By using his executive authority to begin smaller-scale initiatives, Obama hopes to show that he is taking action during the economic crisis while Congress dithers.
Republicans in both chambers quickly denounced his decision to bypass them, underscoring the partisan division that has left Washington in political gridlock.
“Sadly, the president has once again chosen to put politics before policy, touting a plan that will do nothing to help the nation’s unemployed workers,” said Rep. John Kline (R-Minn.), chairman of the House Committee on Education and the Workforce. “What this plan will do instead is encourage more borrowing across the board. That means more debt for students, more debt for taxpayers and more red ink on the government’s books.”
But the president is counting on his initiative to gain broad populist support, even though its scope will be limited.
Of the estimated 36 million people who are paying off student loans, just 450,000 are enrolled in a program, started in 2007, that allows borrowers to limit their repayments to 15 percent of discretionary income. Congress approved legislation to reduce that cap to 10 percent in 2014, and Obama’s plan accelerates the program launch to January.
Education experts said the program has been poorly publicized. The White House expects more people to enroll after the president’s high-profile announcement.
The Occupy Wall Street protesters in cities across the nation have cited rising student debt as one of the pillars of their reform movement. And administration officials said Obama’s announcement was spurred in part by a petition on the White House Web site, signed by 30,000 people, that calls for student loan relief.
Obama’s plan could provide savings that are “in some cases hundreds of dollars a month, which is real money in any economy, especially today’s economy,” said Pauline Abernathy, vice president of the Institute for College Access & Success. “They are real savings and will make a difference in people’s lives.”
Those interested in learning more about the new programs can call 1-800-4FEDAID or go to www.studentaid.ed.gov.
Wilson reported from Denver. Staff writer Daniel de Vise contributed to this report.