President Barack Obama greets the crowd before his speech about managing student debt during an event at the University of Colorado Denver Downtown Campus in Denver, Wednesday, Oct. 26, 2011. (AP Photo/The Denver Post, Joe Amon)
President Obama announced a plan that seeks to lessen the burden of paying back student loans. According to a paper from the Federal Reserve Bank of New York, as reported on by USA Today, total outstanding student debt has passed $1 trillion, more than the nation’s credit card debt, and average indebtedness for students is rising. Student loans are the second largest source of household debt.
Speaking at the University of Colorado Denver, the president recalled his struggles with student loan debt, saying that he and his wife, Michelle, together owed more than $120,000 in law school debt that took nearly a decade to pay off.
"I've been in your shoes. We did not come from a wealthy family," the president said to cheers.
Eamon Murphy,The Daily Finance, reported elements of Obama's student loan effort:
The president's plan will accelerate a measure passed by Congress that reduces the maximum required payment on student loans from 15 percent of discretionary income annually to 10 percent. He will put it into effect in 2012, instead of 2014. In addition, the White House says the remaining debt would be forgiven after 20 years, instead of 25 years. About 1.6 million borrowers could be affected.
The new plan also lets the approximately 6 million borrowers consolidate two student loans (a private loan and a government loan) into one at a lower interest rate -- a reduction of up to 0.5%. Instead of making two payments a month, these borrowers will make one.
Consolidation benefits those who took out student loans under the old system -- ended in 2010 -- in which loans were privately-issued but government backed, known as Federal Family Education Loans. All new federal student loans are now direct, government-issued loans, but there are $400 billion in old-style loans outstanding.
Those who want to participate in the loan consolidation initiative don't have to do anything just yet. Early next year, the Department of Education will contact qualified borrowers and provide more information.
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