President Obama signed an Executive Order on Monday, calling on the Department of Education to expand a program to lower monthly federal student loan payments for 5 million student loan borrowers.
Call your Senators today at 202-517-2321 and urge them to stand with students over millionaires by voting for the Bank on Students Emergency Loan Refinancing Act.
The order comes at a period in which there’s been a significant shift in media attention to the $1.2 trillion student debt crisis. This issue is important not only because of the role it plays in the accessibility of higher education at a time when state support for public colleges is at a record low, but also because that debt is driving down the larger U.S. economy. News agencies, think tanks and other policy institutions have been reporting about the negative effect of student loan debt on the recovery, with particular emphasis on the housing market for first-time home buyers, an important indicator for determining the health of our economy.
The Executive Order is targeted at a demographic of about 5 million people with older loans who, before this, were not able to participate in the Pay As You Earn program which caps student loan repayment at 10% of monthly discretionary income. An important task now for the Administration will be making sure that those who are eligible for this program are aware of it. Currently only a small fraction of eligible borrowers are taking part. Accordingly, part of the Executive Order details the Administration’s plans to work with private lenders to promote awareness of repayment options, and also to expand communications strategies to help vulnerable borrowers.
The administration will also increase efforts in communicating information about these repayment options by creating partnerships with U.S tax preparation firms, who reach millions of tax filers every year.The Secretaries of the Treasury and Education will also work to provide this information during the tax filing process at, “a time when people are thinking about their finances.” Hopefully these partnerships will inform borrowers of programs like Pay as You Earn and help them best evaluate the options at their disposal.
The Executive Order also announces that the Department of Education will renegotiate the contracts between the government and the companies who service federal student loans. Labor and our allies have expressed concern about these contracts, especially the contract with Sallie Mae who recently paid nearly $100 million to settle with the Department of Justice and the FDIC accusations that the company had been intentionally over-charging service members on their student loans.
The current contracts unintentionally created incentives for servicers to act against the interests of borrowers: allowing them to default, aggressively collecting late or defaulted amounts, or steering borrowers into repayment plans that work better for the servicer than the borrower. The White House fact sheet describes the renegotiated terms as “strengthen[ing] financial incentives to help borrowers repay their loans on time”, reduce the government’s payments to servicers of loans which have gone into delinquency or default, and provide more weight to customer satisfaction when the Department allocates new loans to the servicers. While further changes may be needed to create accountability measures for servicers, this realignment of incentives is a step in the right direction.
The president also used the event in order to bring attention to a new bill introduced by Sen. Elizabeth Warren (D-Mass.) called the Bank on Students Emergency Loan Refinancing Act (S. 2432) which would allow student loan borrowers to refinance their debt at the lower interest rates currently offered in the student loan program. This would allow the nearly 40 million Americans pressed by student loan debt to begin saving hundreds to thousands of dollars a year and in turn stimulate the economy. The act pays for itself by implementing what’s called the "Buffett Rule", which closes tax loopholes for people who make over $1 million in a given year.
The Warren bill, while popular among student borrowers and their advocates, has drawn a lot of resistance from Republicans. The bill is expected to go to vote on Wednesday, June 11. Should the bill pass the Senate, it is not expected to be picked up by the House.
There is a growing consensus that student loan debt is crippling the economy. Both the Warren bill and Obama’s Order have the potential to stimulate consumer spending. With these initiatives, student borrowers will be able to save for retirement or to safely make bigger purchases - like opening up a mortgage on a new house. Not only will the ability to refinance help alleviate borrowers’ pocketbooks, it will also alleviate the economy.
Together, the Warren bill and Obama’s Order call the question to Congress: Which side are you on? Those who are trying to make it, or those who’ve already made it?
Don't forget to call your Senators at 202-517-2321 and urge them to stand with students who are struggling with high student loan debt.