Over the weekend President Obama made a strong announcement placing student loan reform at the top of his administration’s summer agenda. In his weekly video address, he expressed support for Senator Elizabeth Warren’s proposed legislation for student debt relief, and on Monday he unveiled a new executive order to reduce the financial burden a college education places on students.
“At a time when college has never been more important, it’s also never been more expensive,” Obama said in his video address which you can watch below. “The good news is that Senate Democrats are working on a bill that would help more young people save money. Just like you can refinance your mortgage at a lower interest rate, this bill would let you refinance your student loans. And we’d pay for it by closing loopholes that allow some millionaires to pay a lower tax rate than the middle class.”
The proposed legislation would allow students to refinance their loans to the lower interest rates available for new borrowers. While the Congressional Budget Office estimates the legislation would cost the federal government $51 billion from 2015 through 2024, the Democrats want to pay for the bill by increasing the tax rate on individuals making between $1 million and $2 million year, with the ultimate goal of making the plan spending neutral.
Naturally the proposed tax increase on the rich has been met with significant Republican opposition. Even if the bill makes it out of the Senate, it is unlikely that the House Republicans will take up the legislation during this election year. But that is why President Obama has opted to show his support for the Democratic plan, while taking further steps to have an impact without Congressional approval through a new executive order.
Announced on Monday afternoon, the executive order will expand a 2010 law that capped repayments for student loans at 10 percent of the borrowers’ monthly income. The expansion will apply this law to an estimated five million individuals who took out their loans before October 2007 and stopped borrowing by October 2011, and who are currently ineligible for this relief.
Simultaneously, President Obama has ordered the Department of Education to renegotiate contracts with companies like H&R Block and Intuit Inc., providing them with financial incentives to help borrowers avoid defaulting on student loans. Specifically these companies will be required to educate borrowers on all of their repayment options, and ensure they are aware of the current tax breaks that exist for individuals paying college tuition.
According to a Fact Sheet circulated by the White House Press Office, 71 percent of individuals earning a college degree graduate with student debt, with averages at $29,400. Currently there is over $1 trillion in outstanding student loan debt in America.