By 2015, up to 5 million more college students and graduates will be able to cap their monthly federal student loan payments.
President Barack Obama signed an executive memorandum Monday to expand a program called Pay As You Earn, which was first announced in 2011 and caps members’ monthly federal student loan payments at 10 percent of their discretionary incomes.
"Higher education is the single best investment that you can make in yourselves and your future, and we’ve got to make sure that investment pays off," Obama said in a speech after the signing.
Almost 39 billion Americans were indebted with student loans at the end of 2012, and at the time up to an estimated 1.6 million people were eligible for the Pay As You Earn program.
Individuals who borrowed before October 2007 or who have not borrowed since October 2011 did not qualify for Pay As You Earn under the current program. Expanded Pay As You Earn eligibility will be available by Dec. 31, 2015, according to the memorandum.
While the Pay As You Earn program can reduce monthly payments, it may extend the repayment period by another decade — causing increased interest. But after twenty years of regular payment, or ten years for public service workers, the debt is forgiven.
The plan outlined in the memorandum pushes for fresh strategies to communicate alternative options for students to repay their loans, especially those who have defaulted on their loans or fallen behind in payments.
About 27 percent of all student loan borrowers in March 2011 had past due balances on their account, according to the Federal Reserve Bank of New York.
"Frankly, universities don’t always counsel young people well when they first come in," Obama said in a live Q&A with Tumblr founder David Karp Tuesday. "They say, don’t worry about it, you can pay for it — not realizing that you’re paying for it through borrowing that you’re going to end up having to shoulder once you graduate."
As of March 2011 the outstanding student loan balance stood at $870 billion, surpassing the total credit card balances, $693 billion, and auto loan balance, $730 billion, according to the Federal Reserve Bank of New York.
The federal government will partner with businesses like H&R Block, the YMCA and TurboTax to inform students about their student loan payment options, according to the memorandum.
The memorandum also calls for a pilot project to examine the effectiveness of loan counseling resources.
You can use this repayment estimator on the whitehouse.gov website to determine if you may be eligible for special student aid programs!
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