President Obama has revealed his new "Know Before You Owe" financial aid program last week, which will make student loans easier to repay and more affordable.
The Occupy Wall Street movement has brought forth overwhelming student debt as a key issue to solve, and in response the president will put this new plan into effect with his executive powers.
"Student loan debt has now surpassed credit card debt for the first time ever," Obama said. "And when a big chunk of every paycheck goes towards student loans instead of being spent on other things, that’s not just tough for middle-class families, it’s painful for the economy and harmful to our recovery."
In his speech at the University of Denver – Colorado, Obama said that he was tired of waiting for action from Congress on the decreasing affordability of higher education, and that he understood the importance of American student financial burdens.
In this plan, students who participate would be allowed to limit their monthly payments to 10 percent of discretionary income, which is five percent less than it was previously.
Students and alumni still in debt could lower their monthly payments roughly one to two hundred dollars a month.
This policy change could affect up to 1.6 million low-income persons who are buried in student loan debts.
Originally, this payback cap was set to take effect two years from now, but the president has bumped it up to this coming January.
Along with the monthly payment cap, the new policy will allow borrowers who have more than one student loan to consolidate them to reduce interest rates, in some cases as much as a percentage point.
"It doesn’t sound like much, but it adds up in the long run, especially if you’re going to be paying off your loans for 15 to 20 years to come," said Jacob Winters, a UW-Stevens Point student.
Also, the president’s accelerated plan includes a reduction in how many years until federal loans are forgiven. Previously, it wasn’t until after 25 years that the government would lift the debt, but now under Obama’s order the wait period is down to 20 years.
Obama said that by taking control of the initiative and pushing it through with his presidential powers he hopes to show the people of America that he is taking action in this economic downturn while Congress wastes time.
But the president still has his work cut out for him in the battle to make higher education more affordable--federal student loan interest rates are set to double in July of 2012.
The senior vice president of the American Council on Education said that he believes the administration is acting in the best interest of students but the real problem lies in the rising interest rates to come.