June 07, 2012
By CHRISTINE ARMARIO | Associated Press
President Barack Obama is taking steps to help thousands of Americans better manage their federal student loan debt.
Details of Obama’s plan were announced by the White House on Wednesday and include streamlining the application process for those who want to enroll in income-based repayment plans, which set a cap on loan payments based on discretionary income.
About 700,000 people currently participate in income-based repayment plans, but Education Secretary Arne Duncan said the administration believes many more students likely qualify.
“This could be an important tool in helping those folks have an option and avoid going into default,” he said.
The White House announced its plans as Republicans and Democrats in Congress continue to struggle over how to avert a doubling of interest rates on new federal student loans for 7.4 million people on July 1. Both sides agree that the current 3.4 percent interest rates on subsidized Stafford loans should be extended for another year, but they disagree over how to pay it.
Top congressional Republicans made a new offer last week in a letter to Obama after the Senate rejected dueling Democratic and Republican plans in late May.
House Speaker John Boehner, R-Ohio, and Majority Leader Eric Cantor, R-Va., sent another letter to Obama Wednesday stating they had not received any response from the administration.
“With all of the great economic challenges facing our country, there is no reason to manufacture political fights where there is no policy disagreement,” they wrote.
In a call with reporters, Cecilia Munoz, director of the White House Domestic Policy Council, wouldn’t disclose details on whether any discussions have taken place, saying only the administration’s view is that both parties should sit down and work to find a bipartisan solution.
Student loan debt has become a growing, debilitating problem for thousands of young adults and their families. While two in three new jobs require some post-secondary education, the cost of attending college has risen and debt is accumulating. Student loan debt has now crossed the $1 trillion mark and surpasses credit cards as the leading source of U.S. household debt outside of mortgages.
Duncan said that for too many young graduates, navigating loan repayment plans is a complicated task and that the president’s plan would make that process easier. Specifically, it calls for the Education and Treasury departments, as well as the Internal Revenue Service, to streamline the process for applying for an income-based repayment plan. Under the directive, federal student loan borrowers will be able to submit income information from their IRS tax return and apply in one sitting.
The memorandum also orders the Education Department to create online and mobile resources for students to learn about federal aid and payment plans. And it directs the department to instruct federal direct student loan servicers to make students aware before graduation of their options to participate in an income-based repayment plan.
Michael Reilly, executive director of the American Association of Collegiate Registrars and Admissions Officers, said the current financial aid process is cumbersome for students, leading many to make decisions that later get them into a difficult spot.
“It takes a lot of initiative on a student's part to understand how some of these processes work right now,” Reilly said. “So anything that can provide more transparency, I think, will expand the number of participants.”