Student Loan Debt Relief – Needed by Millions
President Obama issued an executive order to provide student loan debt relief to struggling Americans, but couldn’t convince members of Congress to follow his lead.
Obama’s executive order, issued June 9, allows about five million borrowers to cap their student loan payments at 10 percent of their monthly earnings. It also directs loan providers to offer financial incentives to borrowers who pay loans on time. The order isn’t expected to go into effect until late 2015.
Student loan debt has reached $1.2 trillion and an estimated seven million of the 40 million borrowers have defaulted on their loans.
“We’re seeing too big a debt load on too many young people,” Obama said at the ceremony announcing the executive order. “More young people are earning college degrees than ever before and that’s something we should be proud of, something we should celebrate.
“But a large majority of today’s college seniors have taken out loans to pay for school and Americans now owe more on student loans than they do on credit cards. That’s an outrage.”
Two days after the executive order, the Senate stopped a bill that would have allowed people with student loans issued before 2010 to refinance their loans at today’s lower rates.
Bank on Students Emergency Loan Refinancing Act Proposed
Sen. Elizabeth Warren (D-Mass.) presented the Bank on Students Emergency Loan Refinancing Act to help people – some paying interest rates as high as 7-9 percent – refinance at 3.86 percent. The measure fell four votes short (56-38) of the 60 needed to bring it to Senate floor for debate.
The sticking point for Republican opponents was that the bill would have been paid for by closing tax loopholes and assessing minimum tax rates for people making over $1 million.
“This raises the fundamental question of who does Washington work for?” Warren told reporters at a news conference after the vote. ”This was a really good day for billionaires. For the 40 million people dealing with student loan debt, it wasn’t such a good day.
“Homeowners are refinancing, small businesses are refinancing and we just want young people who got an education to have their shot at refinancing,”
Republicans complained that the bill did nothing to reduce borrowing or the cost of a college education.
“The Senate Democrats’ bill isn’t really about students at all,” Minority Leader Mitch McConnell (R-Ky) said on the Senate floor. “It’s really all about Senate Democrats. They want an issue to campaign on to save their own hides this November.”
Three Republican senators, Susan Collins (Maine), Bob Corker (Tenn.) and Lisa Murkowski (AK) did join Democrats in voting to move the bill on to debate. Warren said that the bipartisan support encourages her to keep the fight going for the bill, but even if it got past the Senate, House Republicans, always opposed to anything that raises taxes, have promised a dead end when it reaches their chambers.
Obama’s executive order doesn’t need congressional approval, but will not take effect for more than a year while the Department of Education rewrites regulations governing student loans.
In the meantime, the New America Foundation says that 6.8 million Americans have defaulted on $96 billion in student loans. They owe an average of $14,103 and many aren’t aware of alternative programs that could keep them from defaulting.
Anyone with a federal loan is eligible for forbearance or deferment benefits, which allow borrowers to postpone payments without penalties or default. Income-contingent and Income-Based repayment plans are other alternatives that could be explored by anyone in jeopardy of default.
Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].
- NA, (2014, June 9) Remarks by the President on Opportunity for All: Making College More Affordable. Retrieved from http://www.whitehouse.gov/the-press-office/2014/06/09/remarks-president-opportunity-all-making-college-more-affordable
- AP, (2014, June 11) Senate Republicans block student loan bill. Retrieved from http://www.washingtonpost.com/politics/congress/senate-democrats-push-student-loan-bill/2014/06/11/756b8968-f13d-11e3-85d2-cda8aebfefe0_story.html
- NA, (2014, May 1) Federal Student Loan Default Rates. Retrieved from http://febp.newamerica.net/background-analysis/federal-student-loan-default-rates