President Obama's 2011 Executive Order on Student Loans: What it Means For You
No matter which side of the political divide you stand on, chances are you can agree that student loan debt is a problem. Education costs are rising rapidly—tuition goes up an average of 8% per year according to FinAid.org, with an all-time average high of $28,500 for private nonprofit schools and $8,244-$12,526 for public schools in 2011 according to the College Board. Over 65.6% of students at four-year nonprofit institutions carry some sort of debt after college, with the average in 2011 at $25,250--another all-time high. At the same time, new grads are having a hard time finding jobs—with record unemployment of 9.1% for recent college grads in 2010.
Some facets of the Occupy Wall Street movement have called for forgiveness of student loan debt. President Obama has responded to these demands with his “We Can’t Wait” unilateral stimulus effort. Here are the provisions of that effort—and the effect they may have on student borrowers.
No matter which side of the political divide you stand on, chances are you can agree that student loan debt is a problem.
In the past, the federal government had two programs for student borrowers: the Federal Family Education Loan Program (FFEL) and the Federal Direct Loan Program. FFEL loans were given to banks and backed by the government; banks then lent to students. The Federal Direct Loan Program, however, lent to students directly from the government with no banks in between; these cost the government less to administer.
President Obama abolished the FFEL Program as part of the Health Care and Education Reconciliation Act of 2010. However, many people still have FFEL loans—and approximately 6 million people have at least one of each type of loan. The proposed initiative provides certain benefits that encourage borrowers to consolidate their FFEL loans into a Special Direct Consolidation Loan, simplifying payments and reducing interest. It also saves money for the federal government, which can handle outstanding loans under the direct program more easily.
It’s important to note that, under this legislation, students will still not be able to consolidate private student loans along with Federal Direct loans. If you have private loans, these will still be under separate payments.
Currently, students are required to pay only as much as 15% of their income toward student loans. Under the President’s new program, that limit will be reduced to 10%. This change was already set to go into effect in 2014; under the executive order, however, the deadline will be pushed up to 2012. According to the Obama Administration, this provision will help as much as 1.6 million borrowers. The new ceiling affects new borrowers only, however—not those who already have student loans as of 2011.
Currently, your student loan debt can be forgiven after 25 years of regular payment. Under the new executive order, student loans can be forgiven after 20 years. As with the previous provision, this is already-enacted legislation set to go into effect in 2014—that has been moved up to 2012.
Some sources have said that these new initiatives won’t save students significant amounts of money—according to the Atlantic, the initiative is likely to save most affected students only $10 a month or less. But they are a step in the right direction. Hopefully, this legislation will lead to more aggressive reforms that can help larger numbers of students struggling with student loan debt.
The Atlantic: Obama’s Student Loan Order Saves the Average Grad Less than $10 a Month
The Examiner: Obama’s Executive Loan Order and the Silver Bullet Theory
Mint.com: Will Obama’s Executive Order on Student Loans Help You?
NYTimes: Subsidizing the College Bubble: Room For Debate
NYTimes: College Students’ Debt Burden Grew, Yet Again, in 2010
More About Understanding Student Loans
- Credit Repair Services You Should Never Pay For
- Questions You Should Ask Before Applying for Student Loan Forbearance
- The Bank on Students Act: What It Is, and How It Could Help Student Borrowers
- How the Death of a Co-Signer Can Affect Your Student Loan
- Peer-to-Peer Student Loans: What They Are, and How They Can Help You Pay for College
- If You're Unable to Work Because of a Disability: What Happens to Your Student Loan?
- New Rules for Debt Collectors: How They Could Affect Your Student Loan
- Having Trouble Repaying Loans? The Department of Education May Be in Touch