June 9 (Bloomberg) -- President Barack Obama ordered the Department of Education to expand a program to ease student loan repayments for about 5 million more 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. Obama’s order would widen the eligibility to people who took out loans before October 2007. The new rules would take effect in December 2015.
“In a 21st century economy, a higher education is the single best investment in yourself and your future,” Obama said today at a White House event. Yet middle-income families are “feeling trapped,” he said, because they increasingly can’t afford ballooning tuition bills and don’t qualify for programs intended to help poor students.
Young voters gave Obama decisive majorities in his two presidential runs and Democrats are trying to get them to vote in 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 Obama’s efforts 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.”
Education Secretary Duncan told reporters at the White House that the administration doesn’t know how much the expanded payment cap will cost. “We’ll figure that out on the back end,” he said.
Outstanding education debt is at 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.
“This is a country where opportunity should be available for anybody,” Obama said. “Higher education opens the door.”
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.
The president also endorsed 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.
Obama said it “would be scandalous” for Congress to reject aiding students in order to keep tax loopholes for the wealthy. “This should be a no-brainer,” he said.
He said voters should look at “who is it that’s fighting for you and your kids and who is not.”
The Republican leader of the Senate opposes Warren’s legislation.
“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 divisive 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.
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