FACT SHEET: Helping Americans Manage Student Loan Debt with Improvements to Repayment Options
WASHINGTON, DC – In today’s economy, higher education is not a luxury – it’s an imperative that leads to better jobs and a strong middle class. The President believes in creating an economy built to last that gives every hard working student a fair shot at developing the skills they need to find a good job by attending college, university, community college, or job training programs. To help put the cost of higher education within reach for more Americans, the President has taken action to cap monthly payments on student loans for responsible graduates who make their payments on time. Tomorrow, the President will act again by issuing a Presidential Memorandum to the Secretaries of Education and the Treasury to streamline the process and improve information available to responsible borrowers about student loan repayment options.
The President has helped make higher education more affordable by extending Pell Grants to 3 million more students and signing a tax credit worth up to $10,000 to help middle class families cover the cost of tuition. However, prospects of high debt may discourage some potential students from enrolling at all and gaining the skills they need to compete in the global economy. Additionally, some graduates may choose to put off starting a new job-creating business or entering a teaching or another public service career because they feel held back by debt.
Over the past several years, the Administration has worked to improve repayment options available to responsible student loan borrowers. Since 2007, former students have been able to enroll in an “Income Based Repayment” (IBR) plan to cap their student loan payments at 15 percent of their current discretionary income if they make their payments on time. Legislation signed by President Obama in 2009 lowered this cap to 10% for borrowers beginning in 2014. In October, the President announced a “We Can’t Wait” executive action to make that lower cap available to more borrowers by the end of 2012, which will reduce monthly student loan payments for more than 1.6 million responsible student borrowers.
Despite these opportunities and policy improvements to help graduates make their monthly payments, too few responsible borrowers are aware of their repayment options. Even among borrowers who are aware of their options, too many have had difficulties navigating and completing the application process. For many, the most significant challenge in completing the application has been the income-verification process, which, until recently, required borrowers to provide a signed copy of their income tax return. Although the Department of Education has recently removed some of the hurdles to completing the process, too many borrowers are still struggling to access this important repayment option due to difficulty in applying. That is why tomorrow’s Presidential Memorandum:
- · Streamlines the IBR Application Process: The Department of Education, in collaboration with the Treasury Department and Internal Revenue Service, will create a streamlined online application process for IBR that allows student loan borrowers with federally held loans to import their IRS tax return income data directly into the IBR application. This process will allow income information to be seamlessly transmitted so that borrowers can complete the application at one sitting. Federal direct student loan borrowers will no longer be required to contact their loan servicer as the first step to apply.
- · Enhances Online and Mobile Resources for Loan Repayment Options and Debt Management: The Department of Education will create integrated online and mobile resources for students and former students to use in learning about Federal student aid, including an explanation of the various options to cap monthly payments based on income. The Department will also develop and make available to borrowers an online tool to help students make better financial decisions, including understanding their loan debt and its impact on their everyday lives. This tool would incorporate key elements of best practices in financial literacy and link to students’ actual Federal loan data to help them understand their individual circumstances and options for repayment.
- · Increases Awareness of IBR: The Department of Education will instruct Federal direct student loan servicers to make borrowers aware of the option to participate in IBR before a student leaves school and upon entering repayment. The Department of Education will make available for institutions of higher education a model exit counseling module that will enable students to understand their repayment options before leaving school and to choose a repayment plan for their student loans that best meets their needs.
The President will direct Secretary Duncan, and Commissioner Shulman to implement the first two improvements in the coming months (enhancing online and mobile content by mid-July, and streamlining the application with IRS data by the end of September). The model exit loan counseling tool will be available by this time next year.