I took part in a media call yesterday with Education Secretary Arne Duncan on the White House “pay as you earn” plan to help college grads tame their student debt loads and create more workable repayment schedules.
Under the new rules that go in effect in January, 1.6 million borrowers can cap their federal student loan repayments at 10 percent of their income.
President Obama cited the plan today in a speech in Denver on the economy and jobs creation. Here is a relevant excerpt of that speech:
Over the past three decades, the cost of college has nearly tripled. And that is forcing you, forcing students, to take out more loans and rack up more debt. Last year, graduates who took out loans left college owing an average of $24,000. Student loan debt has now surpassed credit card debt, for the first time ever.
Now, living with that kind of debt means making some pretty tough choices when you’re first starting out. It might mean putting off buying a house. It might mean you can’t start a business idea that you’ve got. It may mean that you’ve got to wait longer to start a family, or certainly it means you’re putting off saving for retirement because you’re still paying off your student loans.
And when a big chunk of every paycheck goes towards student loans instead of being spent on other things, that’s not just tough for middle-class families, it’s painful for the economy and it’s harmful to our recovery because that money is not going to help businesses grow.
And let me say this — this is something Michelle and I know about firsthand. I’ve been in your shoes…We did not come from a wealthy family…So by the time we both graduated from law school, we had, between us, about $120,000 worth of debt. We combined and got poorer together. So we combined our liabilities, not our assets. So we were paying more for our student loans than we paid on our mortgage each month.
Then in last year’s State of the Union address, I asked Congress to pass a law that tells 1 million students they won’t have to pay more than 10 percent of their income toward student loans. And we won that fight, too — and that law will take effect by the time — that law is scheduled to take effect by the time freshmen graduate.
But we decided, let’s see if we can do a little bit more. So today, I’m here to announce that we’re going to speed things up. We’re going to make these changes work for students who are in college right now. We’re going to put them into effect not three years from now, not two years from now — we’re going to put them into effect next year because our economy needs it right now and your future could use a boost right now.
So here is what this is going to mean. Because of this change, about 1.6 million Americans could see their payments go down by hundreds of dollars a month — and that includes some of the students who are here today. What we’re also going to do is we’re going to take steps to consolidate student loans so that instead of paying multiple payments to multiple lenders every month — and let me tell you, I remember this. I remember writing like five different checks to five different loan agencies — and if you lost one that month, you couldn’t get all the bills together, you missed a payment, and then suddenly you were paying a penalty. We’re going to make it easier for you to have one payment a month at a better interest rate. And this won’t cost — it won’t cost taxpayers a dime, but it will save you money and it will save you time.
And we want to start giving students a simple fact sheet. We’re going to call it “Know Before You Owe” so you have all the information you need to make your own decisions about how to pay for college. And I promise you, I wish Michelle and I had had that when we were in your shoes. So these changes will make a difference for millions of Americans. It will save you money. It will help more young people figure out how to afford college. It can put more money in your pocket once you graduate. And because you’ll have some certainty, knowing that it’s only a certain percentage of your income that is going to pay off your student loans, that means you will be more confident and comfortable to buy a house or save for retirement. And that will give our economy a boost at a time when it desperately needs it. So this is not just important to our country right now, it’s important to our country’s future.
When Michelle and I tuck our girls in at night, we think about how we are only where we are because somewhere down the line, somebody decided we’re going to give everybody a chance. It doesn’t matter if you’re not born wealthy; it doesn’t matter if your dad is disabled or doesn’t own his own home; it doesn’t matter if you’re a single mom who had to take food stamps — you’re still going to get a shot. You’re still going to get an education. This country gave us a chance. And because our parents and their generation worked and sacrificed, they passed on opportunity to us. And they didn’t do it alone. It was something that we as a country did together.
And now it’s our turn — because the dream of opportunity is what I want for you, and I want for my daughters, and I want them for your children. I want them for all young people, because no matter how tough times are, no matter how many obstacles stand in our way, we are going to make the dream that all Americans share real once again. And that starts right now. It starts with you.
–From Maureen Downey, for the AJC Get Schooled blog