President Obama Proposes New Student Loan Rules in Expanded Program Targeting College Debt Loads

With the student loan crisis continuing to weigh heavily on college students and the larger United States economy, President Barak Obama moved this week to sign an executive order allowing five million people to cap their student loan payments at 10% of their income per month. This new rule expands the existing Pay as You Earn Program in a meaningful way and represents a major move by the Obama administration to support financial literacy for individuals and families.

Currently, the “Pay As You Earn” loan repayment program applies only to newer student loan borrowers who borrowed after October 2007. New rules are attractive to those who now participate in income-based repayment because they potentially can reduce one-third of the monthly payment.

Critics of the new rules raise two main concerns. First, the rules would not cover loans from private financial institutions. In response to this concern, the government will try to renegotiate contracts with private lenders to help people repay their student loans. Second, some think that the expansion of the policy is not aggressive enough and that there should be more protections to resolve the student loan issue.

President Obama’s agenda this week will include a number of events at which he can focus on his financial education policies, including two commencement addresses he’ll make on Wednesday and Saturday in Massachusetts and California. The rising costs of student loans and the broader issues sparked by the student debt issue will be central themes that he and his surrogates will be discussing in the days to come.