By Peter Schroeder - 10/25/11 09:21 PM EDT
The Obama administration rolled out a new initiative Tuesday intended to lower the monthly bills fro students struggling to pay their education loans.
The announcement marks the latest effort by the White House to boost the economy while circumventing Republican opposition in Congress. It follows announcements of steps to help home owners and veterans.
"We all know how large student debt has become across the country," Secretary of Education Arne Duncan told reporters Tuesday. "This is trying to address a real challenge."
The president is expected to tout these efforts when he visits a Colorado college on Wednesday.
Student-loan debt eclipsed credit card debt as the nation's top financial burden in the fall of 2010. With the economy struggling and unemployment lingering above 9 percent, frustrations about hefty debt loads have been aired at Occupy Wall Street protests cropping up across the country.
The graduating class of 2009 left college not just with a diploma, but an average and growing debt burden of $24,000, according to the Project on Student Debt.
Specifically, Obama's plan will speed up the implementation of a law approved by Congress last year, under which borrowers could cap their student loan payments at 10 percent of their total income beginning in 2014, with all remaining debt forgiven after 20 years. The White House now plans to move up the active date to the beginning of next year.
Melody Barnes, the director of the Domestic Policy Council, said the change will affect 1.6 million borrowers and "could reduce their payments by hundreds of dollars every single month."
"These are real savings that will help these graduates get started on their careers and help them make ends meet," added Duncan.
Furthermore, the White House is going to allow lenders to consolidate the two types of loans into a single government loan beginning next year, reducing interest rates by up to half a percentage point and lowering monthly bills.
That announcement came on the same day that the Consumer Financial Protection Bureau (CFPB) announced its joint venture with Duncan's department to simplify loan information for potential college students.
The CFPB unveiled a one-page model form that colleges could provide prospective students, which would clearly lay out the costs of their attendance, how much debt they would have to incur, and how much in monthly payments they will be making after graduation. The public has been invited to weigh in on the forms.
The CFPB is already working on a similar simplification process for mortgage forms, with the overall goal of making it easy for people to directly compare and evaluate the costs of taking on debt.
“Student loans are one of the best examples of how credit can make lives better and help people achieve the American dream,” said Raj Date, the president's special adviser in charge of setting up the CFPB. “But in these tough economic times, the stakes have never been higher for students and their families to clearly understand the costs and risks of student loans. Having a simple, one-page financial aid shopping sheet would help students compare offers and choose the one that’s right for them.”