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On Wednesday the president announced that he’s moving to ease Americans’ student debt load with an executive order that would save borrowers “hundreds of dollars a month” in student loan payments.
Called the “Pay As You Earn” plan, starting January 2012 people would be able to cap their federal student loan payments at 10 percent of their discretionary income. Any remaining debt would be forgiven after 20 years. This cap was due to take effect in two years, but Obama’s moved the timetable up. In his speech at the University of Colorado at Denver, Obama said that the plan, which would also allow students to consolidate their federal student loans under a lower interest rate, could help around 1.6 million Americans ease their monthly bills.
“Let me tell you,” Obama told the cheering crowd. “I remember this. I remember writing, like, five different checks to five different agencies and if you lost one that month you couldn’t get all the bills together. And if you missed the payment, suddenly you were paying a penalty.”
Obama’s proposal isn’t exactly a new idea, but rather a revision. It’s lifted from the IBR, or the income-based repayment plan, which was signed into law in September 2007 by President George W. Bush. Bush’s initiative allowed students to cap their federal student loan payments at 15 percent of their discretionary income, and allowed students to walk away from the rest of their debt after 25 years.
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