Almost all student loan legislation passes an uphill battle in Congress and very little gets passed. There were more than 80 pieces of legislation proposed last year that related to making student loans more affordable and only one passed – the Student Loan Certainty Act of 2013 – that tied student loan interest rates to the 10 year Treasury note yield. Not one other piece made it through – though there were many that would have made life drastically better for struggling student loan debtors.
Monday, President Obama signed an executive order to extend his Pay-As-You-Earn program to all student loan debtors. Previously, it was only available to those who were new borrowers as of October 2007 and had at least one loan disbursement after October 2011. The executive order signed yesterday would open up PAYE to any student loan debtor and this is huge!
This order means that millions more student loan debtors can qualify to have their student loan payments cut down to just 10% of their disposable income. This won’t be an instant fix, though, and the changes won’t come online until December 2015. But still, this is huge. The other big change is that as the law stands now, only borrowers with financial hardship can take advantage of PAYE – but the financial hardship requirement will be removed by this new executive order. The President also took a swipe at loan servicers and says they have to do better helping students that are struggling.
What was also a huge plus was that at the same time that Obama signed the presidential memo, he also endorsed Elizabeth Warren’s Senate Bill 2432 which would allow those with higher student loans to refinance at lower rates and would also allow private student loan holders to refinance to federal loans, although it would not make the converted private loans eligible for Public Service Loan forgiveness and would limit forgiveness under PAYE or IBR for formerly private student loans.
(Note – we assume the President is endorsing S 2432 – Warren has a near-identical bill in S 2292 but that one has not been reported out of committee yet – we will confirm once the executive order has been released)
President Obama also broke script from his prepared text to lambast Republican lawmakers. He took them to task, accusing them of allowing millionaires to pay lower taxes than the middle class through tax loopholes. He mentions that Warren’s bill would close these loopholes to pay for this bill. He also mentioned Republican cuts to Pell Grants and says that Republicans will help big oil, but not students. Pretty harsh language.
Once the Executive Order has been published on the White House site, we’ll link to it here so you can read it for yourself. By expanding PAYE, this also effectively expands loan forgiveness. PAYE allows forgiveness of remaining loan balances after 20 years of regular payments. And today, Tuesday, June 10th, the President will host a Q&A on Tumblr. Here’s the link so you can tune in and participate or check it out after the fact if you’ve missed the online event.
If you’ve got student loans, sign up for Tuition.io’s free student loan tool to keep track of your debt, find out the impact on your monthly payments of signing up for IBR or the expanded PAYE program and how this will change your interest paid and total debt paid back.