In June, student loans were the focus of a White House executive order and heated debate on the floor of the U.S. Senate. President Obama issued a presidential memorandum seeking new caps on student loan payments, while Sen. Elizabeth Warren (D-MA) introduced the Bank on Students Emergency Loan Refinancing Act (S. 2432). The bill, which would reduce rates on new loans, lower their costs, and limit debt burden, ultimately failed to garner enough votes to move forward.
The White House presidential memorandum directs the secretary of education to begin the process to allow nearly 5 million federal student loan borrowers to cap their student loan payments at 10 percent of their respective incomes. The memorandum requests the secretary to conduct an expeditious rulemaking process in order to enable eligible borrowers to take advantage of this option by Dec. 31, 2015.
Presently, only certain federal loan borrowers, who took out loans on or after Oct. 1, 2011, are eligible for the Pay as You Earn repayment plans, the rules of which officially went into effect July 1, 2013.
Financial Education, Counseling
Other elements of President Obama’s directive seek new strategies to help educate and assist struggling student loan borrowers.
Effective communication. Obama asked the secretary of education to implement more effective methods of communication with borrowers.
The memorandum provides the following details: “In addition to focusing on borrowers who have fallen behind on their loan payments, the secretary’s effort shall focus on borrowers who have left college without completing their education, borrowers who have missed their first loan payment, and borrowers (especially those with low balances) who have defaulted on their loans to help them rehabilitate their loans with income-based monthly payments.”
In the directive, the president also asks the secretary of the treasury and the secretary of education to “invite private-sector entities to enter into partnerships to better educate borrowers about income-based repayment plans during the tax filing season in 2015.”
Targeted counseling. Lastly, the president asks the secretary of education, in consultation with the secretary of the treasury, to:
“ … convene higher education experts and student-debt researchers to identify ways to evaluate and strengthen loan counseling for federal student loan borrowers … [and] collaborate with organizations representing students, teachers, nurses, social workers, entrepreneurs, and business owners, among others, to help borrowers represented by these organizations learn more about the repayment options that are available to them in financing their investment in higher education and managing their debt, and to provide more comparative, customized resources to those borrowers when possible.”
Following the president’s announcement, House Education and the Workforce Committee Chairman John Kline (R-MN), stated: “The challenge a lot of college graduates face in the Obama economy is finding a good-paying job. For many, the dream of launching a successful career after graduation has turned into a nightmare of debt and unemployment. … The House remains focused on policies that promote job creation, so that every graduate who wants a job can find a job. The committee will also continue its work to strengthen the postsecondary education system through reauthorization of the Higher Education Act.”
Sen. Lamar Alexander (R-TN), a former U.S. secretary of education and former president of the University of Tennessee, in a press release on June 9, reacted by saying, “Republicans want to work with the president on the real student debt problems: overly complicated loan repayment programs, mostly caused by the Obama administration itself, and excessive borrowing, mostly caused by a very small percent of graduate students. Ninety percent of all loans over $100,000 are graduate loans—and these loans are just 6 percent of all graduate loans and less than 2 percent of all student loans.”
Senate Fails to Pass Student Loan Refinancing Legislation
Alexander also voted against Sen. Warren’s legislation, stating, “This is not a serious proposal. It’s not going to help people. College graduates don’t need a $1-a-day subsidy to pay off their $27,000 loan, which is the average for a four-year degree. They need a job.”
On June 11, the Senate took up the Bank on Students Emergency Loan Refinancing Act (S. 2432), but supporters failed to secure the 60 votes needed to invoke cloture, after a vote of 56 to 38. Debate was heated, with Republicans accusing Warren, and Democrats, of using student debt for political gain.
“With this vote, we show the American people who we work for in the United States Senate: billionaires or students,” Warren said. The student loan provisions in S. 2432 would have been paid for by implementing a new tax on anyone making more than $1 million a year, by phasing in the so-called “Buffett Rule.”
Ultimately, any changes to student loan programs are likely to be a part of the rewrite of the Higher Education Act. Policy makers have taken the first steps in the process by holding hearings and inviting feedback from the public, but it could be years before a final reauthorization is approved.