Choose a Category  
June 09, 2014

Students in Boston protest high student debt rates during an Occupy march in 2011 (Lauren Metter/ Flickr CC).

President Obama issued an executive order on Monday, authorizing college students who take out federal loans to cap their loan repayments at 10 percent of their monthly incomes.

Obama said the order would allow an additional five million borrowers to cap their student loans beginning next year.  

In a statement, American Council on Education president Molly Corbett Broad applauded Obama's efforts. "While today's step is valuable, broad action to lower the cost of student loans and improve repayment options will require action by both Congress and the administration," Broad said.

Obama is also urging Congress to pass a bill introduced by Massachusetts Senator Elizabeth Warren that would allow students to refinance their federal and private student loans at lower interest rates.

Warren wants to bring high student loan interest rates down to the rates that are offered to new borrowers this year.

“Anyone who has a student loan, whether it’s a federal student loan or a private student loan, would be eligible to refinance,” Warren told WGBH, shortly after filing the bill. “With interest rates at historic loans, homeowners have refinanced their mortgages. Small business owners have refinanced their outstanding business loans. But former students have not been able to do that.”

How does Warren plan to pay for the plan? She has proposed closing tax loopholes on millionaires and billionaires. The bill faces stiff GOP opposition, but Warren’s office says it will come up for a vote on Wednesday.

The legislation is written so that the Department of Education can limit who qualifies. Economist Sandy Baum with the Urban Institute says it is likely anyone could refinance, but if there is high demand the Department could restrict it. 

“This bill allows people who have federal student loans at interest rates higher than those prevailing today to lower the interest rates,” Baum explains. “But it also allows people who have borrowed private loans from Sallie Mae or from a bank to move those loans into federal loans.”

Without certain regulation, Baum says the financial risk would shift to the federal government. 

“Only loans in good standing can be refinanced, but it’s not to say they’ll be in good standing in a year or two,” Baum said.

Baum thinks one thing this Congress could do to help young people repay their outstanding student loans is to require income-based repayment plans.

“Instead of automatically putting students in a ten-year repayment plan, we should automatically put them in the income-based plan,” Baum said.

On WGBH’s The Takeaway, Heidi Moore, U.S. finance and economics editor at The Guardian, said easing the burden on student debt should free up spending and improve credit ratings.

"What we have is an economy where it's really hard to get a job and then once you do get a job, you find yourself spending almost all of your money just to catch up on your debt," Moore said. "That's not good for any part of the economy."

Listen to Moore on The Takeaway:

confronting cost, increasing access and success

Previous Post

With Focus on Competencies, Colleges Rethink Business Models

Next Post

Harvard To Negotiate With Grad Student Labor Union

comments powered by Disqus