As Congress Bickers, Obama Takes Executive Action on Student Loans

June 09, 2014

On the eve of a Senate fight over student-loan refinancing, President Obama is taking executive action to ease students' debt burdens.

At a White House event on Monday, Mr. Obama will announce that he will expand a law that caps borrowers' loan payments at 10 percent of their income to individuals with older loans—those who borrowed before October 2007 or stopped borrowing by October 2011.

The president will also announce plans to renegotiate contracts with federal student-loan servicers to provide them with financial incentives to keep students out of default. The percentage of students defaulting on their loans within two years of graduating reached 10 percent last year, the highest rate in nearly two decades.

Matt Lehrich, a White House spokesman, estimated that an additional five million borrowers would qualify for lower payments under the president’s plan.

It’s unlikely that many borrowers will enroll, however. While students' debt levels are at an all-time high, enrollment in income-based repayment plans has remained stubbornly low, at roughly 11 percent of borrowers. And the new relief won’t be immediate, either—struggling borrowers will have to wait until the end of 2015, to give the Education Department time to issue new regulations.

In an effort to increase participation in income-based plans, the administration has been conducting an aggressive outreach campaign. Last fall the Education Department emailed more than three million borrowers to notify them that they might be eligible for income-based repayment. In January the administration announced an agreement with lntuit Inc. to include a banner on its TurboTax tax-preparation website inviting users to learn more about their repayment options.

Meanwhile, the department’s student-loan servicers have come under fire from regulators and consumer advocates for failing to notify borrowers of all their repayment options and benefits.

Slim Chances for Senate Plan

Monday’s announcement comes as Senate Democrats are gearing up for a vote on legislation introduced by Sen. Elizabeth A. Warren, Democrat of Massachusetts, that would allow struggling borrowers to refinance their debt at lower interest rates. The idea has populist appeal, but it won't get much support from Senate Republicans, who have blocked similar bills by Democrats.

In an email a Senate Republican aide hinted that a filibuster was possible, saying there was "deep discussion" within the party on a strategy for how to proceed.

"We’d be happy to engage in an honest debate," the aide wrote, requesting anonymity in order to speak frankly about the matter. But since Senate Democrats "won’t let us offer amendments, it’s hard to have a debate on a bill when we can’t mount an effort to change this deeply flawed bill."

"This is obviously just a political stunt," he added.

Even if Senator Warren’s measure does pass the Senate, it is unlikely to win approval in the Republican-controlled House of Representatives, which opposes plans to pay for the measure through a tax increase on millionaires. That means President Obama’s executive action—however incremental—could be the best news struggling borrowers get this election year.

Borrowers with questions about the plan can ask the president himself. He'll answer them live on Tuesday, in his first Tumblr Q&A.