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(Updates with details of loan program, Obama to promote initiative in Denver beginning in fourth paragraph.)
Oct. 25 (Bloomberg) -- Almost 6 million people with federal student loans would see their payments reduced under an Obama administration plan that would let them consolidate debt.
The plan also would accelerate imposition of a cap on payments at 10 percent of income for some people with federal education loans by having it take effect next year rather than in 2014, Melody Barnes, White House domestic policy adviser, told reporters.
For some workers burdened by student loans the changes “could reduce their payments by hundreds of dollars every single month,” Barnes said.
President Barack Obama will discuss the student loan relief tomorrow at a stop when he speaks at the Denver campus of the University of Colorado. The changes, which require no action by Congress, represent the third in a series of steps taken by the administration to bypass lawmakers and put some of the president’s economic policies in place after Republicans blocked his $447 billion package of tax cuts and spending aimed at boosting hiring.
With Obama on a three-day trip to western states to raise campaign cash and promote his policies, administration officials this week also outlined plans to ease refinancing for homeowners who owe more on mortgages than their houses are worth and to encourage hiring of veterans at community health centers.
Under the loan proposal, people who have student loans through both the direct government loan program and the Federal Family Education Loan program would be able to consolidate what they owe into a single government loan with lower monthly payments and interest rates, Barnes said.
That could reduce by as much as 0.5 percent the interest paid by 5.8 million people, saving borrowers hundreds of dollars, she said.
The acceleration of the 10 percent income cap would affect an estimated 1.6 million borrowers whose type of loan and whose debt in proportion to income and family size makes them eligible for the federal student loan Income-Based Repayment Plan, according to a fact sheet released by the White House.
Barnes said the student loan relief Obama is announcing will only affect students with federal loans. “These are not private loans that we’re talking about,” she said.
Education Secretary Arne Duncan said the changes offer “real savings” that can help recent graduates “make ends meet.”
Federal and private college loans outstanding are now approaching $1 trillion, according to Mark Kantrowitz, publisher of FinAid.org, a college grant and loan website.
Borrowers are defaulting on their student loans at the highest level since 1997, according to the Education Department. The latest rate, which applies only the first two years students are required to make payments, rose to 8.8 percent in the two years through Sept. 30, 2010, from 7 percent a year earlier.
Earlier today, Obama urged federally funded community health centers across the U.S. to create about 8,000 jobs for veterans over the next three years. The administration also announced plans to increase programs to help military medics become physician’s assistants by giving priority grants to colleges and universities that train veterans for such careers.
The Federal Housing Finance Agency said yesterday it would expand a program aimed at aiding the housing market by allowing qualified homeowners to refinance no matter how much their homes have declined in value.
Obama is going to take steps that bypass Congress “every week going forward,” White House Communications Director Dan Pfeiffer told reporters yesterday in Washington.
--With assistance from John Hechinger in Boston and Roger Runningen in Washington. Editors: Joe Sobczyk, Robin Meszoly
To contact the reporters on this story: Margaret Talev in Washington at firstname.lastname@example.org; Kate Andersen Brower in San Francisco at email@example.com
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