President Barack Obama will take executive action Monday to reduce ballooning student loan payments for millions of Americans, as part of a plan to ease the economic effects of massive student loan debt.
The plan will cap borrowers’ repayments at 10 percent of their monthly income, officials said, expanding on a 2010 law and providing relief for about five million people who took out loans before October 2007 or stopped borrowing by October 2011.
The executive action takes new steps to "further lift the burden of crushing student loan debt," the White House said, and is part of Obama's effort to circumvent Republican opposition in a midterm election year.
"From reforming the student loan system and increasing Pell Grants to offering millions of students the opportunity to cap their monthly student loan payments at 10 percent of their income, making a degree more affordable and accessible has been a longtime priority for the President," the White House said in a statement. "But he knows there is much more work to do and that’s what this week is all about."
Economists say the more than $1 trillion in outstanding student loan debt is burdening the economy, limiting graduates' ability to buy cars, take out mortgages and spend money to spur the economy. The average student who graduates with outstanding loans is $29,400 in debt.
Other parts of the plan include teaming up with Intuit, Inc. and H&R Block, two of the U.S.’s largest tax preparation firms, to implement student loan repayment option and pilot a program to test the effectiveness of student loan counseling, among other measures.
Under the plan, a 2009 graduate with a student loan debt of $26,500 who earns $39,000 a year as a fourth year teacher would see an annual reduction of $1,500 in annual loan payments.
Sen. Elizabeth Warren (D-Mass.) has sponsored a bill that would allow about 25 million Americans to refinance federal and private loans at lower interest rates. The legislation would cost the government $58 billion over 10 years and raise $72 billion through a new tax on high-income earners, the New York Times reports.
The President's executive action would be a backstop if the bill does not make it through the Senate and the Republican-controlled House. "Even though our bill goes further, the President’s action means something will be done even if Republicans block it,” said Sen. Charles Schumer (D-N.Y.).
House Speaker John Boehner said the executive action would do little to make college more affordable. “Today’s much-hyped loophole closure does nothing to reduce the cost of pursuing a higher education, or improve access to federal student loans – nor will it help millions of recent graduates struggling to find jobs in the Obama economy," he said.