Bloomberg News
President Barack Obama will order the Department of Education today to expand a program that would ease student loan repayments for about 5 million people.
Under a 2010 'Pay as You Earn' law, borrowers make repayments of no more than 10 percent of their monthly income. The benefit applies only to those who started borrowing after October 2007, shortly before the recession began. The executive order would widen the eligibility to people who took out loans before October 2007.
The new rules would take effect in December 2015, according to the White House.
'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,' the White House press office said in a statement.
Young voters gave Obama decisive majorities in his two presidential runs and Democrats are attempting to turn out that voting bloc for the November congressional elections. With much of his agenda blocked by the Republican-controlled House, Obama has used executive actions to bypass Congress on initiatives that appeal to the party's base.
Republican Senator Lamar Alexander of Tennessee, called the executive action a 'political stunt' that will have only a small impact on the majority of people with student loans. He said the effort would be better spent on measures to increase employment.
'College graduates don't need a $1-a-day taxpayer subsidy to help pay off a $27,000 loan,' Alexander said in a statement. 'They need a good job.'
Student Debt
Outstanding education debt is a record $1.2 trillion, which includes loans taken out by students and their parents in federal and private programs. About 85 percent of that is government-backed debt.
Graduates of the class of 2012 who took loans for bachelors' degrees owed an average of $29,500, according to The Institute for College Access & Success, an Oakland, California-based nonprofit group. About 71 percent of those college seniors borrowed.
'Higher education results in higher earnings and a lower risk of unemployment, but for too many low- and middle-income families this essential rung on the ladder to opportunity and advancement is slipping out of reach,' according to the administration statement.
To augment Obama's order, the Education Department is renegotiating contracts with loan servicers, urging them to try to stick with borrowers to avoid defaulting on loans.
Senate Bill
The president is also endorsing a bill in the Senate sponsored by Elizabeth Warren, a Massachusetts Democrat, that would permit students to refinance loans to take advantage of lower rates. He would pay for the loss of federal revenue by imposing new taxes on wealthy individuals. The Republican leader of the Senate opposes the bill.
'This bill doesn't make college more affordable, reduce the amount of money students will have to borrow, or do anything about the lack of jobs grads face in the Obama economy,' Senate Minority Leader Mitch McConnell of Kentucky said in a statement.
The legislation is primarily designed to be a wedge issue in the midterm elections, Guggenheim Securities LLC said in a note to clients today.
'The legislation is unlikely to move in the Senate and has almost no chance in the House, though it's an anchor of the Democratic midterm playbook,' Guggenheim said.
Tomorrow, Obama will take part in a live question-and-answer session on student debt on the blogging site Tumblr Inc., the White House statement said.
To contact the reporter on this story: Roger Runningen in Washington at rrunningen@bloomberg.net
To contact the editors responsible for this story: Steven Komarow at skomarow1@bloomberg.net Joe Sobczyk, Mark McQuillan
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