June 09, 2014

Obama to expand student debt program

June 10, 2014 – President Barack Obama announced on Monday his administration would expand a federal program that aims to reduce payments for federal student-loan borrowers – opening the program to 5 million more federal student loan borrowers.

The program, "Pay As You Earn," caps the borrowers' monthly bills at 10 percent of their income and forgives debt that has not yet been paid off after 20 years of payments. Previously, the program was only available to borrowers who took out loans after October 2007. Obama on Monday directed Education Secretary Arne Duncan to change the rules to allow anyone with a federal student loan to join.

The broadening of the "Pay As You Earn" program comes during a push by Senate Democrats, led by Senator Elizabeth Warren, D-Mass., to allow current holders of private student loan debt to refinance through a government program at the lower interest rate available to students taking out new loans under last year's Bipartisan Student Loan Certainty Act.

NAFCU continues to monitor programs administered through the agencies and additional legislative action that it believes could limit credit unions' ability to meet their members' needs through private student lending. Borrowers with outstanding student loans may have interest rates of 7 percent or higher for undergraduate loans, while the Bipartisan Student Loan Certainty Act, enacted last summer, established a rate of 3.86 percent for those loans.

With efforts to address various student lending issues ramping up, NAFCU continues to oppose any attempts to allow student loans to be discharged through the bankruptcy process.