The president’s new student-loan plan would sweeten a program known as income-based repayment, created by Congress in 2007, in which borrowers with a federally subsidized loan are required to make payments on the loan each year that total no more than 15 percent of their discretionary income. The new proposal could cut that maximum payment to 10 percent, and could allow those loans to be fully forgiven after 20 years of payments rather than the current 25 years.
It’s estimated the changes will cost the government about $1-billion over five years. The president is making the proposal despite the fact that he continues to wait for Congress to act on a far larger commitment to students that he made when he took office a year ago.
The student-loan plan is part of a package of modest initiatives intended to help middle-class families to be proposed in the State of the Union address:
Mr. Obama hopes to use his speech on Wednesday to demonstrate that he understands the economic pain of ordinary Americans. The proposals also include expanded tax credits for retirement savings and money for programs to help families care for elderly relatives. The address is still being written, but one senior official, describing it on the condition of anonymity, said its main themes would include “creating good jobs, addressing the deficit, helping the middle class and changing Washington.”