President Obama issued an executive order last Wednesday offering consolidated federal student loans and lowered repayment rates to ease the burden of debt on American students.
Part of the president’s “Pay as you Earn Plan,” which aims to make graduates’ debt proportional to their income, allows borrowers to consolidate different student loans into one government loan and gives them the option to pay off debt at 10 percent of their discretionary income annually for 20 years, after which their debt will be forgiven. Students must have taken out at least one loan from 2008 to 2012 to qualify; while PLUS loans are eligible, Perkins, private and many federal loans for those entering health professions are not.
Donald Lathbury, communications director for former UC Regent and incumbent Congressman John Garamendi, said the 10th district representative believes the plan is a much-needed catalyst for the nation’s stagnant economy.
“There are millions of students and recent graduates that are struggling to stay afloat given that there are few jobs in the economy right now,” Lathbury said. “The president’s announcement is one step we can take to getting a better economy. 5.8 million borrowers … will be able to refinance by consolidating their loans, which will lead to a reduction in their interest rates.”
Students’ discretionary income — which the federal government defines as earnings 150 percent above the poverty level — is evaluated to determine eligibility for lower repayment rates.
Ashley Schapitl, press secretary for Congresswoman Lois Capps, said graduates with more to spend will serve to further stimulate the economy.
“By giving young people the chance to lower monthly payments and consolidate their loans, there is more money in the pocket for young people,” Schapitl said. “It is good for the economy in general because a young person in their twenties is able to lower their monthly payment and they will have more money to spend every month.”
California Assemblymember Das Williams said the plan serves more than just the economy, providing individual graduates with sound financial foundations — a trend that could develop much faster with decreased tuition rates.
“[The plan] gives students a chance to get established in their field; it supports the fundamental goal of striving for a higher education, and that is to be able to make a decent living,” Williams said in an e-mail. “What state and federal lawmakers have to work on is controlling the inflating cost for higher education, which is drastically more than it was just a few years ago when I attended.”
Williams said the executive order is also the Obama administration’s groundbreaking step toward representing students’ interests in national policy.
“The President’s plan for student loan relief is a revolutionary step to lessen the burden of education costs,” Williams said. “It is the only recent development in policy or the economy to prevent recently graduated students from being overwhelmed with debt.”
Enrollment for the new plan will begin in January 2012 and is scheduled to end June 30, 2012.