WASHINGTON, DC – Congressman John Garamendi (D-Fairfield, CA), a former University of California Regent and California State University Trustee, today praised President Obama for announcing a landmark executive order easing the burden of student loan debt on students. The plan expands on Congressional Democrats’ student loan reform plan passed last year.
Under the plan, some students will be able to consolidate their loans into a single government loan, pay less per month based on income, and have loans forgiven earlier. The initiative is part of the President’s "We Can’t Wait" plan, following nearly a year of Republican obstructionism in Congress.
"I’ve spoken to dozens of recent graduates in my district, and they all say the same thing: there are very few jobs available for them, and the ones that exist aren’t paying well," Congressman Garamendi said. "Our country is weakened when we have an entire generation of graduates saddled with debts they can’t afford to pay back. President Obama is wise to offer relief to Americans with excessive student loan debt."
"Ask most business owners in America what they need most right now, and they’ll tell you they need customers," Garamendi continued. "This initiative will help boost demand in our economy precisely when we need it. Instead of paying off interest that goes into the banking ether, thousands of young adults will have more money available to make purchases that will help small businesses grow and hire new workers."
The President’s "Pay As You Earn" plan to cap monthly payments will allow 1.6 million students to:
- Pay no more than 10 percent of their income toward student loans, instead of the current 15 percent. This policy was scheduled to go into effect in 2014 following passage of the Democratic student loan reform bill last year, but President Obama is accelerating the program to 2012; and
- Have student loans forgiven after 20 years, compared with the current 25-year-limit.
Approximately 5.8 million borrowers have both a Direct Loan (DL) and a Federal Family Education Loan (FFEL) that require separate payments, making the borrowers more likely to default. By allowing these students and recent graduates to consolidate their loans, borrowers could see up to a 0.5 percent reduction in their interest rates.
Student loan debt is expected to surpass $1 trillion this year. On average, students who graduated this year left with about $27,000 of debt.