This week President Obama signed an executive order that will have an immediate impact on student loans. The president said in a press conference that his order will focus on three main areas:
1) The president will direct the Secretary of Education, Arne Duncan, to cap student loan payments at 10% of the borrower’s income, for borrower’s who are actively paying their loans. The president referred to this as “pay as you earn.”
2) The president called for a renegotiation with lenders like Sallie Mae that service student loans.
3) The president wants every borrower to be informed about all of the loan options and loan repayment options that are available to them.
A main point of interest in the order is the call for the forgiving of student loans after 20 years of repayment history, as part of the pay as you earn concept. Many of those who are opposed to the president’s executive order may realize that this option has already been available to students since 2007. Millions of students who started college in 2008 or after are already privy to these payment options.
But the president’s order opens these payment options and percentage caps to approximately 5 million Americans who had accumulated student loans prior to 2008. It also sets the precedent for future borrowers.
The order also extends this relief to all federal student loan borrowers, not just those with loans serviced by Sallie Mae. Service members who accumulated federal student loans before they entered the military are no longer required to ask their student loan servicers for interest rate reductions; with the signing of the executive order, the lower rate will already apply.
It should be mentioned that this executive order in no way affects the Post-9/11 GI Bill. The GI Bill is not a loan, it pays tuition directly to schools on the Veteran’s behalf.
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Military Connection: Obama Caps Student Loans: By Debbie Gregory