In a move sure to be popular with recent college graduates, the Obama Administration released details of a plan Tuesday that will ease the burden of student loan debt. The first and perhaps most welcome part of the plan moves up the start date on the income-based repayment program passed by Congress last year from 2014 to 2012. According to a statement released by the Administration, under its “Pay As You Can” plan, an estimated 1.6 million students will be able to cap their loan payments at 10% beginning next year.
Additionally, beginning in January, the some 6 million students who hold both direct government student loans and government-backed private loans will be able to consolidate their debt into one government loan. In effect, that part of the plan allows students to refinance private loans at a lower government rate, which according to the Administration amounts to an interest rate reduction of up to 0.5%.
The plan will also allow student debt to be forgiven after 20 years, compared with 25 years under current law.
But while every little bit helps, the plan only applies to federally-backed loans, which are capped, and does not affect the private loans many students take to cover the rest of their education costs. These private student loans, which often entice families with variable interest rates that start low and then rocket sky-high, also lack certain consumer protections, such as the ability to discharge the debt if the borrower dies. Talk about onerous.
Obama will formally announce the executive action — the third in as many days aimed at bypassing Congress and boosting his re-election campaign — at an event in Denver later today, the same day as a report from the non-profit College Board shows tuition and fees at public colleges nationwide rose more than 8% this year. It also comes on the heels of USA Today story last week, which — using data from the Department of Education, the Federal Reserve Bank of New York and other sources — found that for the first time ever student loan debt is expected to hit $1 trillion. It is also the first time Americans have owed more on student loans than on credit cards.
The skyrocketing student loan debt is especially unwelcome for the Class of 2011, which received the unwelcome distinction of becoming the most indebted graduating class ever. In fact, USA Today found students today are borrowing double the amount they did 10 years ago — after adjusting for inflation.
Not only are Americans taking on more student debt, they are not paying it off as quickly. In the wake of the recession, consumers have prioritized paying off credit cards and mortgages, which often carry higher interest rates, at the expense of student loans. In fact, over the past five years the total outstanding student loan debt has doubled and today more than 1 in 10 people with student loans are more than three months behind in their payments.
But while the news is good for current and former students, it is less positive for the private companies that have issued government-backed loans to students. Shelly Repp, president of the National Council of Higher Education Loan Programs, told the Wall Street Journal, that banks and other firms that administer federal student loans stand to lose assets and income as a result of the plan. According to the WSJ story, investors rushed to sell off the stocks of some lenders in the wake of the news, including SLM Corp., the parent company of Sallie Mae, which lost nearly 13% Tuesday, while another education-finance company, Nelnet Inc., fell by nearly 7%.
Kayla Webley is a Writer-Reporter at TIME. Find her on Twitter at @kaylawebley or on Facebook at facebook.com/kaylawebley. You can also continue the discussion on TIME’s Facebook page and on Twitter at @TIME.