President Obama will pitch a plan today to help ease the burden of loans on college students, as a new report shows that higher education is becoming more expensive for many young Americans.
Starting next year, borrowers’ student loan payments will be capped at 10 percent of their discretionary income, and they could be eligible for forgiveness on the balance of their debt in 20 years. Under the current plan, loan payments are limited to 15 percent of a borrower’s discretionary income, and their balance is forgiven after 25 years.
The plan will also help provide an opportunity for reduced interest payments. Students will be able to consolidate their loans under the same terms and conditions in a move that proponents say will simplify the payment process and help nearly 6 million borrowers. The Department of Education will send out a letter this year to borrowers who qualify, and those who consolidate their payments will receive a one-time, half percent reduction on their interest rate for some of their loans.
The plan has the potential to cut hundreds of dollars from a borrower’s loan payment, the administration says, and it will help about 1.6 million students and alumni.
The administration says it is also taking steps to make it easier to participate in the program. Currently, students and alumni whose federal student loan debt is higher than their income and family size are eligible to participate in the program, but many are not aware of the aid plan. While more than 36 million Americans have federal student loan debt, less than 450,000 Americans participate in income-based repayment, according to the White House.
The current Income-Based Repayment Plan also includes other helpful measures. For those who cannot pay the interest on their bill, the government can foot the interest payment for up to three consecutive years. Those who work in public service are also eligible for forgiveness after 10 years.
Obama’s executive order speeds up the implementation of the Pay as You Earn plan, which was passed by Congress last year and was initially set to start in 2014. The changes, however, will not come from the taxpayers’ dime, the White House says.
“In a global economy, putting a college education within reach for every American has never been more important,” Obama said in a statement. “But it’s also never been more expensive. … Steps like these won’t take the place of the bold action we need from Congress to boost our economy and create jobs, but they will make a difference. And until Congress does act, I will continue to do everything in my power to act on behalf of the American people.”
Today’s announcement, to be made in Colorado, is part of the president’s push to implement measures to stimulate the weak economy. Obama’s $447 billion jobs billed is stalled in Congress because of Republican opposition. But the economy continues to spiral downward even as Washington remains in a gridlock.
The economy has taken a toll on young Americans, in particular. The cost of education overall has jumped 900 percent since 1978, while the total U.S. student-loan debt is nearly $1 trillion. The unemployment rate for people younger than 30 is 13 percent, higher than the national average. Many college students have taken their frustration to the streets as part of the “Occupy” protests and by organizing walkouts and demonstrations.
A new report from the College Board finds a significant raise in college fees. Average in-state tuition and fees at four-year public colleges surged 8.3 percent this year and more than 4 percent at private colleges. The College Board said the tuition increases were caused by weak economy and a lag in state funding that has not kept pace with the growth in college enrollments. Most of that surge was driven by California, where college costs rose by 21 percent.
The average in-state tuition at a public four-year institution for 2011-12 is $17,131, while at a private institution it is $38,589.
The report also concluded that recent measures by the administration to provide educational tax credits and tuition deductions helped increase savings for students.