(White House photo)



The Obama administration today announced some actions it can take to bypass Republican obstruction and reduce the burden of student loans for millions of current students and recent graduates, at no new cost to taxpayers.

Currently, an income-based repayment program lets people with student debt reduce their loan payments to 15 percent of their discretionary income; after 25 years, remaining debt is forgiven. Last year, Congress passed a law reducing that 15 percent to 10 percent and forgiving remaining debt after 20 years. That was set to go into effect in 2014, but President Obama is using regulatory authority to make it take effect in 2012. The administration estimates that this could reduce payments for 1.6 million people. For instance (from an emailed fact sheet):

A nurse who is earning $45,000 and has $60,000 in federal student loans. Under the standard repayment plan, this borrower’s monthly repayment amount is $690. The currently available IBR plan would reduce this borrower’s payment by $332 to $358. President Obama’s improved ‘Pay As You Earn’ plan will reduce her payment by an additional $119 to a more manageable $239 -- a total reduction of $451 a month.

One problem, though, is that the current program suffers from obscurity and many people aren't taking advantage of it. In some cases, that may be a good move; while the program reduces monthly payments, it doesn't reduce total debt, so it can lead to people paying increased interest over the years. However, in this economy, a reduced payment could mean avoiding default for a great many people.

Additionally, a larger group of student borrowers will have a chance to consolidate loans and reduce interest payments:

While all new federal student loans are now Direct Loans thanks to the historic reforms in the Health Care and Education Reconciliation Act, there are still $400 billion outstanding in old Federal Family Education Loans. These loans offer fewer repayment options and are unnecessarily expensive for taxpayers. In addition, about 6 million borrowers have at least one Direct Loan and at least one FFEL loan, which requires them to submit two separate monthly payments, a complexity that puts them at greater risk of default.

These people who have both types of loan will be encouraged to consolidate them, leaving them with just one monthly payment and reducing the interest rate by up to 0.5 percent, a difference that will be small month to month but could add up to hundreds over the life of the loan.

When you consider that there is more than $1 trillion in outstanding student loan debt and that these changes affect less than 10 million borrowers, this move is a very small drop in the very large bucket of need. And President Obama isn't claiming otherwise, saying, "Steps like these won’t take the place of the bold action we need from Congress to boost our economy and create jobs, but they will make a difference. And until Congress does act, I will continue to do everything in my power to act on behalf of the American people."

It's a shame Congress is going to keep millions of students and recent graduates waiting for more substantial help as they face a job market in which one survey found that 14 percent of students who graduated between 2006 and 2010 were either unemployed or working part-time because they couldn't find full-time work, and with even those who can find full-time work facing falling entry-level wages. But it's good to see the Obama administration thinking creatively about how to get around congressional obstruction.