Citing the “crush” of student loan debt and its impact on the future of the economy, President Barack Obama announced plans to expand a program designed to make it easier for borrowers to pay back their student loans.
Speaking Monday in front of a group of college students of various ages, President Obama said that he would be directing Secretary of Education Arne Duncan to expand the “Pay as You Earn” law, which caps student loan repayments at 10% of monthly income. The new changes are expected to increase the program’s pool of eligible participants by nearly 5 million people, President Obama said.
Currently the program applies to those who began borrowing after October 2007. The expansion would increase the eligibility to students who began borrowing before October 2007.
The expansion of the program is expected to be in place by December 31, 2015.
In his remarks, and in his weekly radio address, President Obama spoke of the “crushing” debt that students face and how it impedes economic growth. “At a time when college has never been more important, it’s also never been more expensive,” the President said. “If somebody plays by the rules, they shouldn’t be punished for it.”
In the Presidential Memorandum outlining the measures he was proposing, President Obama said that the average tuition costs at a public four-year college has “more than tripled” in the last 30 years, while a typical family’s income has only slightly increased.
“More students than ever are relying on loans to pay for college,” President Obama said. “Today, 71% of those earning a bachelor's degree graduate with debt, which averages $29,400. While most students are able to repay their loans, many feel burdened by debt, especially as they seek to start a family, buy a home, launch a business, or save for retirement.”
President Obama's weekly address can be viewed below. And click to the next page to see exactly how student loan debt is stalling the housing recovery and what President Obama plans to do about it.
Members of the President’s administration, specifically those at the Consumer Financial Protection Bureau, have recently stated that the high rate of student loan debt and its impact on the debt-to-income ratios of potential borrowers are keeping younger buyers out of the housing market.
"According to an analysis by the Federal Reserve Bank of New York, for the first time in at least a decade, households with student loan debt are less likely to have a mortgage than those without student loan debt,” CFPB Director Richard Cordray told attendees at the Boulder Summer Conference on Consumer Financial Decision Making last month.
In October, the student loan ombudsman for the CFPB, Rohit Chopra said, “"The fact is student indebtness impacts the credit profile of first-time homebuyer. Three-fourths of the fall in household formation can be directly correlated to student debt."
According to data from the New York Fed, student loan debt rose from $241 billion in 2003 to $1.11 trillion in the first quarter of 2014. “These costs have left the middle class feeling trapped,” President Obama said on Monday. “We believe that no young person should be priced out of a good education.”
Additionally, President Obama announced that he will also be directing Secretary Duncan to “develop, evaluate, and implement new targeted strategies to reach borrowers who may be struggling to repay their federal student loans to ensure that they have the information they need to select the best repayment option and avoid future default.”
President Obama also said that his administration fully supports a bill authored by Senator Elizabeth Warren, D-Mass., which would let borrowers refinance their student loan debt at today’s lower interest rates. In his weekly address, President Obama said that the refinancing would be paid for “by closing loopholes that allow some millionaires to pay a lower tax rate than the middle class.”
At one point, the President deviated from his prepared remarks to expand on his thoughts on the importance of Warren’s bill. “You’ve got a pretty straightforward bill here,” the President said. “It’s comes down to lower tax bills for millionaires or lower student loan interest rates. This should be a no-brainer.”
The Congressional Budget Office said that the bill would allow for half of the outstanding loan volume for federal student loans and loan guarantees (about $460 billion) to be refinanced. Young buyers armed with lower DTI ratios can only help the struggling housing market.
Near the close of his weekly address, President Obama said, “While Congress decides what it’s going to do, I will keep doing whatever I can without Congress to help responsible young people pay off their loans.”
“This country has always made a commitment to put a good education within the reach of all who are willing to work for it,” he concluded. “That’s what made us an economic superpower. That’s what makes us special. And as long as I hold this office, I’ll keep fighting to give more young people the chance to earn their own piece of the American Dream.”