President Obama Expected To Expand Student Loan Debt Relief

CNNMoney: Obama Expected To Announce Expansion Of Student Loan Debt Relief. According to CNN, on June 9, President Obama is expected to announce an “expansion of a program that helps student loan borrowers manage their debt.” The president is expected to expand “criteria for an alternative repayment program, which caps monthly payments for certain federal student loans at 10% of a borrower's discretionary income.” [CNNMoney.com, 6/9/14]

Obama's Plan Would Help Student Loan Borrowers Manage Their Debt

Wall Street Journal: Obama's Plan Will Reduce Payments And Forgive Some Debts After Twenty Years.  According to The Wall Street Journal, Obama's plan to reduce payments for student-loan recipients will cap “borrowers' monthly student-loan bills at 10% of their income,” forgiving remaining loan balances after twenty years of timely payments. The Journal also noted that for some jobs in government or nonprofit work, there is an option that debt would be forgiven after ten years. 

A White House official said the plan would allow as many as five million more Americans with federal student loans to enroll in “Pay As You Earn,” a program that caps borrowers' monthly student-loan bills at 10% of their income.

After 20 years of payments, any remaining debt is forgiven, at a cost to taxpayers. For government workers and those in certain nonprofit jobs, debt would be forgiven after 10 years.

Currently, only borrowers who took out new loans after October 2007 are eligible.

Mr. Obama is expected to direct Education Secretary Arne Duncon to write regulations that make the program available to anyone with a federal loan. [The Wall Street Journal, 9/8/14]

Time: Debt Reduction Plan Also Incorporates Student Loan Counseling, Expanding On A 2010 Law. According to Time, in addition to placing a cap on monthly payments that will help “provid[e] relief for about five million people,” the president's plan to address the student debt crisis will also include a “pilot a program to test the effectiveness of student loan counseling”:

President Barack Obama will take executive action Monday to reduce ballooning student loan payments for millions of Americans, as part of a plan to ease the economic effects of massive student loan debt.

The plan will cap borrowers' repayments at 10 percent of their monthly income, officials said, expanding on a 2010 law and providing relief for about five million people who took out loans before October 2007 or stopped borrowing by October 2011.

[...]

Economists say the more than $1 trillion in outstanding student loan debt is burdening the economy, limiting graduates' ability to buy cars, take out mortgages and spend money to spur the economy. The average student who graduates with outstanding loans is $29,400 in debt.

Other parts of the plan include teaming up with Intuit, Inc. and H&R Block, two of the U.S.'s largest tax preparation firms, to implement student loan repayment option and pilot a program to test the effectiveness of student loan counseling, among other measures. [Time, 6/9/14]

Fox Frames Student Loan Proposals As Expensive, Politically Motivated

Fox News Criticized Obama For Using “Taxpayer Money” To Address Student Debt Crisis. On the June 9 edition of Fox News' Fox & Friends, co-host Brian Kilmeade and Fox Business anchor Stuart Varney criticized the Obama administration's plan to help student borrowers refinance their loans. Kilmeade claimed that Obama had already “nationalize[d] the student loan program” with “our taxpayer money,” while Varney concluded that taxpayers would be “footing the bill some way down the road”:

VARNEY: Let me explain exactly what the president is going to do today in conjunction with congress. He is going to extend the student loan debt forgiveness -- the forgiveness program -- extend it to everybody. He's also going to make moves to allow you to refinance your student debt so you get monthly payments down, and spread it over a longer period of time. So, the forgiveness program is enhanced. The monthly costs come down. He will say, “look what I'm doing for you, the students. Look what I'm doing for the economy.”

[...]

What you've got here is the taxpayer footing the bill some way down the road, years down the road. And we don't know what that bill is going to be, but it is going to be a bill and the taxpayer will have to pay. Meanwhile, five months from the election the president gets the political kudos, being able to say, “look what I've done for the economy. Look what I've done for the young people. Vote for me.” [Fox News, Fox & Friends, 6/9/14]

Fox's Bret Baier: Obama's Focus On Student Debt Crisis Is Just An Attempt To Change The Topic. On the June 9 edition of Fox News' Happening Now, co-host Jenna Lee and Fox's Bret Baier opined that Obama was only addressing the student debt crisis because “he's trying to turn to any topic that is not” the Veteran Affairs or Bowe Bergdahl's release. [Fox News, Happening Now, 6/9/14] 

Outstanding Student Loan Debt Totals More Than $1 Trillion

AP: “Surging Above $1 Trillion, U.S. Student Loan Debt Has Surpassed Credit Card And Auto-Loan Debt.” The Associated Press (AP) reported in 2012 that student debt had “surpassed credit card and auto loan debt,” reaching over $1 trillion in what the AP called a “debt explosion.” The AP noted that millions of debt-burdened taxpayers could both undermine the “fragile recovery” and “possibly set the stage for a new economic crisis”:

Surging above $1 trillion, U.S. student loan debt has surpassed credit card and auto-loan debt. This debt explosion jeopardizes the fragile recovery, increases the burden on taxpayers and possibly sets the stage for a new economic crisis.

[...]

Lifting student debt higher and higher is the escalating cost of attending schools, with tuition increasing far faster than the rate of inflation. And enrollment has been rising for years, a trend that accelerated through the recent recession, fueling even more borrowing.  [Associated Press, 4/3/12] 

Wall Street Journal: Class of 2014 The Most “Indebted” In History. According to a May 16 column in The Wall Street Journal, college graduates in 2014 are the most indebted graduating class in history. The Journal noted that “a greater share of students is taking on debt to finance higher education,” while the debt burden “continues to rise faster than inflation”:

The average Class of 2014 graduate with student-loan debt has to pay back some $33,000, according to an analysis of government data by Mark Kantrowitz, publisher at student-marketing company Edvisors. Even after adjusting for inflation that's nearly double the amount borrowers had to pay back 20 years ago.

Meanwhile, a greater share of students is taking on debt to finance higher education. A little over 70% of this year's bachelor's degree recipients are leaving school with student loans, up from less than half of graduates in the Class of 1994.

[The Wall Street Journal, 5/16/14] 

Student Loan Debt Is Bad For The Economy

New York Times: Evidence That Student Debt Stunts The Economy. According to The New York Time's Upshot blog, there is “a growing body of evidence that rising levels of student loan debt are restraining the ability of young adults to enter the 'grown-up' economy -- to buy a car and to buy a home.” The Times also noted that student loans are unlike mortgages or car loans; borrowers “can't simply walk away without paying,” because “debts aren't cleared by bankruptcy”:

[T]here's a growing body of evidence that rising levels of student loan debt are restraining the ability of young adults to enter the “grown-up” economy -- to buy a car and to buy a home and start filling it with big stuff.

While the overall level of student debt may not measure up to that of mortgages -- $8.2 trillion -- it is highly concentrated among a small slice of people -- those in their 20s and 30s -- who are the engines of a great deal of economic activity. One of the crucial reasons the housing market has not expanded enough to support robust economic growth is that young adults are not setting up their own households at anywhere near the historical norm. [The New York Times, 5/14/14]

New York Fed: Student Debt Holders “Retreating From Housing And Auto Markets.” According to a Federal Resrve Bank of New York report, student-loan borrowers are retreating from the housing market, and “despite the marked improvement in the aggregate housing market,” student loan holders “were still less likely to invest in houses than nonholders in 2013”:

Despite an 11 percent house price recovery over the course of 2013 and an increase in overall mortgage debt, thirty-year-olds with and without student loans continued to retreat from the housing market. 

Further, student borrowers failed to exhibit the differential recovery one might expect in 2013. Prior to the most recent recession, homeownership rates were substantially higher for thirty-year-olds with a history of student debt than for those without. This pre-recession pattern is typically explained by the fact that student debt holders have higher levels of education on average, and hence, higher income potential. Simply put, these more educated, often higher-earning, consumers were more likely to buy homes by the age of thirty. 

However, the recession brought a sudden reversal in this relationship. As house prices fell, homeownership rates declined for all types of borrowers, and declined most for those thirty-year-olds with histories of student loan debt. In last year's blog, we reported that 2012 was the first time in at least ten years that thirty-year-olds with no history of student loans were actually more likely to have home-secured debt than those with a history of student loans. 

Did student borrowers regain their homeownership advantage in the course of the broader recovery? They did not. Surprisingly, student loan holders were still less likely to invest in houses than nonholders in 2013, despite the marked improvements in the aggregate housing market. [Federal Reserve Bank of New York, 5/13/14]

Pew Research: Student Loan Debt Increased During Recession. According to the Pew Research Center, student loan debt “was the only major type of debt to increase” during the recession. Pew data further show that the debt-to-income ratios among individuals under the age of 35 have grown, and more than doubled since 1983. It peaked at 1.63 in 2007 and reaching 1.46 as of 2010:

Student debt was the only major type of debt to increase in prevalence among young households during the recession. In 2007, 34% of young households had outstanding student debt. By 2010, 40% of younger households had student debt. [Pew Research, 2/21/14]