Photo by JEWEL SAMAD/AFP/Getty Images
President Obama announced a new two-pronged student debt plan Wednesday that is aimed at jolting the economy and unburdening students from some of their debt.
Once the changes take effect, Americans will be able to consolidate interest rates on their government student loans and government-backed private loans into one government loan. The Wall Street Journal reports that around 5.8 million people who hold both loans would receive a reduction of up to 0.5 percent in their interest rate.
The new plan will also push up a plan from 2014 to January 2012 that will allow college graduates to cap federal loan repayments at 10 percent of their discretionary income, as opposed to the current 15 percent. In the current system, all remaining debt is forgiven after 25 years, but Obama’s plan would cut that time frame to 20 years. According to the Washington Post, 1.6 million borrowers would benefit from the accelerated "pay as you earn" program.
Student debt is a great concern to young people, and for good reason. Student financial aid expert Mark Kantrowitz told WSJ that last year student loan debt exceeded credit card debt for the first time in history.
The president's tweaks received strong support from Democratic constituencies, and the changes are expected to help energize young people who represent a large, important part of Obama’s voting base.
"These are real savings that will help graduates get started in their careers," Education Secretary Arne Duncan told the Post ahead of the official announcement. "These changes could make a big difference in the lives of current college students and recent graduates as they enter one of toughest job markets in recent memory."
This is the third day in a row Obama has used an executive order that would bypass a stingy Congress that appears to have no interest in passing his $447-billion jobs package. Earlier this week, the president passed a plan to help struggling homeowners repay their mortgages and another aimed at forcing community health centers to hire military veterans.
Many Republicans have opposed efforts to rein in student loans programs, and banks and other firms that supply student loans are bracing for lost assets and income once the plan is in place. A spokesman for House Speaker John Boehner declined to comment until the details are released later Wednesday.