Obama implements limited student loan forgiveness, other changes to payment plans

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For the second time this week, President Obama will use his executive authority, this time to lower monthly college loan payments, the New York Times is reporting.

The plan will allow millions of student loan recipients to lower their payments and consolidate their loans, in hopes of easing the burden of the No. 2 source of household debt.

Obama’s announcement in Denver came the same day as a new report on tuition costs from the College Board. The report said average in-state tuition and fees at four-year public colleges rose $631 this fall, or 8.3 percent, compared with a year ago. Nationally, the cost of a full credit load has passed $8,000, an all-time high.

White House officials said Obama will provide student loan relief in two ways.

First, he will accelerate a measure approved by Congress that reduces the maximum required payment on future 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 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 a current loan from the Federal Family Education Loan Program and a direct loan from the government to consolidate them into one loan. The consolidated loan would carry an interest rate of up to a half percentage point less than before. This could affect 5.8 million more borrowers.

Some critics have said the plan would end up leaving taxpayers on the hook for the balance of loans that go unpaid, amounting to a student aid stimulus.

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