President Barack Obama Wednesday announced a series of measures aimed at easing the burden of debt on students struggling to repay their federal college loans. American student loan debt is nearing a collective $1 trillion and these loans are currently the second greatest source of household debt after mortgages.
Speaking to a crowd of college students in Denver, the president confirmed that he would use his executive authority to provide relief for borrowers and outlined a new Pay As You Earn plan.
The first thing to be done, according to Obama, is to speed up implementation of a measure already passed by Congress that reduces the maximum repayment on student loans from 15 percent of discretionary income annually to 10 percent. The White House wanted it to go into effect in 2012, instead of 2014. The remaining debt would be forgiven after 20 years, instead of 25.
The second step will be to allow borrowers who have a loan from the Federal Family Education Loan Program and a direct loan from the government to consolidate the two into one loan. The consolidated loan would carry an interest rate of up to a half percentage point less than before.
The president remembered that back when he married his wife, Michelle Obama, they had a combined $120,000 in student debt.
We combined and got poorer together. Over the past three decades, the cost of college has nearly tripled and that is forcing you, forcing students, to take out more loans and rack up more debt. Last year, graduates who took out loans left college owing an average of $24,000. Student loan debt has now surpassed credit card debt, for the first time ever. Living with that kind of debt means making some pretty tough choices when you're first starting out, said the president.
The White House estimates more than 7 million students could benefit from these changes and says some borrowers could reduce payments by hundreds of dollars a month. The Obama administration has said that 1.6 million Americans will benefit from the lower monthly payments and upwards of 6 million can take advantage of the loan consolidations.