Obama to offer student-loan break

Eastern Michigan University sophomore Leah Shutes Shutes works in the office of communications at Eastern Michigan University in Ypsilanti, Mich., to help offset the costs of college, but the journalism major still struggles to pay for school.
Eastern Michigan University sophomore Leah Shutes Shutes works in the office of communications at Eastern Michigan University in Ypsilanti, Mich., to help offset the costs of college, but the journalism major still struggles to pay for school. (LON HORWEDEL / Associated Press)
Posted: October 26, 2011

WASHINGTON - Millions of student-loan borrowers will be eligible to lower their payments and consolidate their loans under a plan that President Obama intends to announce Wednesday, the White House said.

Obama will use his executive authority to provide student-loan relief in two ways.

First, he will accelerate a measure passed by Congress that reduces the maximum repayment on student loans from 15 percent of discretionary income annually to 10 percent. The White House wants it to go 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. About 1.6 million borrowers could be affected.

Second, he will allow borrowers who have loans from both the Family Education Loan Program and a direct loan from the government to consolidate them. The consolidated loan would be up to a half percentage point less. This could affect 5.8 million more borrowers.

Education Secretary Arne Duncan told reporters on a conference call that the changes could save some borrowers hundreds of dollars a month.

"These are real savings that will help these graduates get started in their careers and help them make ends meet," Duncan said.

Obama is expected to announce his plan at a stop in Denver. The White House said the changes would carry no additional costs to taxpayers.

Last year, the Democratic-controlled Congress passed a law that reduced the cap and moved all student loans to direct lending by eliminating banks as the middlemen.

Also Tuesday, the Education Department and the Consumer Financial Protection Bureau announced a project to simplify the financial-aid award letters that colleges mail to students.

A common complaint is that colleges obscure the inclusion of student loans in financial-aid packages to make their school appear more affordable.

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