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U.S. President Barack Obama (R) is greeted by University of Notre Dame President Rev. John Jenkins (L) prior to speaking during commencement ceremonies in South Bend, Indiana, May 17, 2009. REUTERS/John Gress (UNITED STATES POLITICS RELIGION HEALTH EDUCAT U.S. President Barack Obama (R) is greeted by University of Notre Dame President Rev. John Jenkins (L) prior to speaking during commencement ceremonies in South Bend, Indiana, May 17, 2009. REUTERS/John Gress (UNITED STATES POLITICS RELIGION HEALTH EDUCAT  

Obama Makes Unilateral Move On Student Loans

President Barack Obama announced a sweeping executive order Monday that opens a more generous student loan repayment program to millions of graduates.

The executive order commands Secretary of Education Arne Duncan to expand access to the federal government’s Pay As You Earn (PAYE) program, thereby allowing indebted graduates to cap their loan payments at 10 percent of disposable income per month, with the possibility of forgiving the balance of their loans if they make timely payments for twenty years. For those in public sector careers such as teaching, their outstanding loan balance can be forgiven after just ten years.

For those such as modern-day law graduates with average loan amounts reaching into the six figures, qualifying for PAYE could save them hundreds or thousands of dollars a year. Students with loans from prior to 2007 were until today restricted to an older system called Income-Based Repayment (IBR), which required up to 15 percent of income to be paid in and forgave debt after 25 years.

Obama’s action is in line with a promise he made in his last State of the Union to take more action on his own to circumvent a sharply divided Congress that has not acquiesced on any of his major policy goals during his second term.

The president justified his order by pointing out that the loan burdens of undergraduate students had risen dramatically in recent decades, squeezing middle class individuals who can’t finance their own education and do not qualify for need-based scholarships.

“Michelle and I both went to college because of loans and grants…when I got out of school, it took me about a year to pay off my entire undergraduate education,” Obama said during a speech Monday. He also cited his own mother, who he said was able to raise two children as a single mother while in school thanks to grants, without taking on thousands in debt.

In contrast, today the average undergraduate leaves school with $30,000 in student loan debt, and student debt has surpassed credit card debt as the second-largest source of debt in the United States, behind home mortgage debt.

Democrats have already lined up to praise the president’s action, but Republican House Speaker John Boehner dismissed the order as a gimmick that does nothing to change the trajectory of rising student loan burdens.

“Today’s much-hyped loophole closure does nothing to reduce the cost of pursuing a higher education, or improve access to federal student loans — nor will it help millions of recent graduates struggling to find jobs in the Obama economy,” Boehner said in a statement.

Obama said he would prefer to work with Congress to change the student loan system, but said gridlock in Congress and the pressing nature of the problem forced him to take what action he could now.

President Obama also voiced support for a new student loan bill, expected to be introduced by Massachusetts Democratic Sen. Elizabeth Warren later this week. Warren’s bill will allow for millions of students to refinance their student loans to have a lower interest rate.

In a divided Congress, the bill will drive conversation but is highly unlikely to win over House Republicans, since it pays for its anticipated $50 billion cost by raising taxes on the wealthy.

Obama diverged from his planned remarks Monday to launch a general attack on Republicans for their attitude on spending and taxes.

“I don’t know, by the way, why folks aren’t more outraged about this,” he said. “You would think that if somebody, like me, has done really well, in part because the country has invested in them, that they wouldn’t mind at least paying the same rate as a teacher, or a nurse. There’s not a good economic argument they should pay a lower rate, it’s just clout.”

“It would be scandalous if we allowed those kinds of tax loopholes for the very, very fortunate to survive while students are having trouble just getting started in their lives,” Obama continued.

The Republican line, he said, was that “If they’re a big oil company they’ll go to bat for you. If you’re a student, good luck.”

Lindsey Burke, an education policy fellow at the conservative Heritage Foundation, said Obama’s action would do nothing to solve the actual causes driving higher education costs, and would only incentivize further increases in tuition and loan burdens by institutions that see the government willing to step in.

“We’ve seen federal subsidies increase substantially over the past decade, and college costs continue apace,” Burke told The Daily Caller News Foundation. “Why would a college bother to keep tuition and fees low if the government will continue to increase subsidies?”

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