President Barack Obama signed an executive order Monday that would allow the expansion of an already existing program called "Pay As You Earn".
The new rules, which take effect in December 2015, will now prevent an additional 5 million student loan borrowers from paying more than 10 percent of their income towards their loans. Plus, their remaining loan debt will be forgiven after 20 years. That benefit is currently available only for new student loan borrowers - those who opted for a loan after September 30, 2007.
"It's a baby step in the right direction," said Mark Kantrowitz, senior vice president and publisher of Edvisors Network, to the Daily News. "It's an improvement, but it's not earth shaking."
According to the White House - over the past three decades, the average tuition at a public four-year college has more than tripled, at the same time; a typical family's income has just gone up by just 16 percent. As a result, about 71 percent of student graduates have an average debt amount of $29,400.
"I'm only here because this country gave me a chance through education," Obama said as he signed the executive order at the White House. "We are here today because we believe that in America, no hard-working young person should be priced out of a higher education."
Obama also urged the U.S. Department of Education to educate students about several income-based repayment programs and to introduce ways to effectively counsel borrowers. The president also promised that the government would renegotiate contracts with loan servicing companies, asking them to support more struggling debtors.
Under the new rules, debtors who are now part of the student loan relief program - "Income-Based Repayment" - might be able to reduce their costs by switching to "Pay As You Earn." Those who are entitled to "income-based repayment", pay 15 percent of their discretionary income towards their student loans as compared to 10 percent under the "pay-as-you-earn" repayment.
David Flores, a 33-year-old consumer credit counselor in the midtown Manhattan office of GreenPath, graduated from law school two years ago. Currently, Flores has $225,000 in debt and pays 15 percent of his discretionary income towards his student loan.
If qualified for "Pay As You Earn," he might be able to lower the costs by 5 percent. "It's great," Flores said. "It could help me."
