Millions of student loan borrowers will be eligible to lower their payments and consolidate their loans under a plan President Barack Obama intends to announce Wednesday, the White House said.
The Obama administration plans to allow college graduates to cap their federal student loan repayments at 10 percent of their discretionary income starting in January, two years before the cap was due to take effect under federal law.
The accelerated “pay as you earn” program, which Obama will authorize through executive order, could benefit up to 1.6 million borrowers and reduce their payments by as much as a couple hundred dollars a month, administration officials said. All remaining debt on the federal loans would be forgiven after 20 years — five years earlier than under current law.
In addition, some borrowers who have more than one federal student loan will be allowed to consolidate their debt, in some cases reducing their interest rates by up to half a percentage point, officials said.
Most of the 450,000 low-income student-loan borrowers currently enrolled in income-based payment must pay 15 percent of their discretionary income for 25 years before having their debt forgiven, although terms are easier for those in public service.
Between January and June, Mr. Duncan said, borrowers making payments on both kinds of loans can consolidate them and get a half-percent interest-rate cut. The savings to pay for the lower loan rate, he said, would come from the lower cost of administering the combined loan.
The program will not cost taxpayers anything because the administration plans to use savings from the elimination of loan subsidies to pay for the reduction on interest rates on loans that are consolidated.
Further information on the new programs will be available at 1-800-4FEDAID (1-800-433-3243) or www.studentaid.ed.gov.