College graduates and college students are starting to breathe a little easier thanks to President Barack Obama’s signing of a memorandum directing the secretary of education to propose regulations that would allow nearly 5 million federal direct student loan borrowers the opportunity to cap their student loan payments.
According to the White House, 71 percent of students earning a bachelor’s degree graduate with debt, averaging $29,400. While most students are able to repay their loans, some feel burdened by debt, especially as they seek to start a family, buy a home, launch a business or save for retirement.
The memorandum allows for students to cap their student loan payments at 10 percent of their income. It also outlines new executive actions to support federal student loan borrowers, especially vulnerable borrowers who may be at a greater risk of defaulting on their loans.
“You would think that if somebody like me has done really well—in part because the country has invested in them—that they wouldn’t mind at least paying the same rate as a teacher or a nurse,” Obama said. “There’s not a good economic argument for it, that they should pay a lower rate.
With legislation passed by Congress and signed by the president in 2010 and regulations adopted by the administration in 2012, most students taking out loans can already cap their loan payments at 10 percent of their incomes. Monthly payments will be set on a sliding scale based upon income. Any remaining balance is forgiven after 20 years of payments, or 10 years for those in public service jobs.
“It’s just clout, that’s all. So it’s bad enough that that’s already happening. It would be scandalous if we allowed those kinds of tax loopholes for the very, very fortunate to survive while students are having trouble just getting started in their lives,” the president said.
The practice of defaulting on students loans has become widespread in the nation, leading those who went to college unable to move forward financially. Student loan debt in the United States now exceeds $1 trillion.
Today’s average college graduate holds $26,600 in debt when he or she graduates, and the numbers for borrowers of color are more severe. A 2010 study by the College Board Advocacy & Policy Center found that 27 percent of Black bachelor’s degree recipients had student loan debt of $30,500 or more, compared to just 16 percent of their white counterparts. About 81 percent of Black students borrow money, compared to 65 percent of their white peers. Students of color tend to borrow more, and when they do borrow, they often face higher interest rates than their white counterparts.