President Announces Student Loan Relief Plan

President Barack Obama announced a new plan Wednesday that would help alleviate student loan woes for millions of Americans.

Image courtesy Associated Press

Speaking at the University of Colorado, the President shared his own struggles. Mr. Obama said he and his wife, Michelle, together owed more than $120,000 after graduation that took nearly a decade to pay off.

"I've been in your shoes," the President said to a cheering crowd. "We did not come from a wealthy family."

Mr. Obama's new plan will accelerate a Congressional measure that reduces the maximum required payment on student loans from 15 percent of one's discretionary income to 10 percent. The plan would put this rule into effect in 2012, instead of the original date in 2014.

Also, after 20 years, instead of 25, any unpaid debt would be forgiven under the new plan. The measures could affect more than 1.6 million people.

Borrowers will also be allowed to consolidate loans from the Federal Family Education Loan Program and direct loans from the government.  This joint loan plan should lower the interest rate by half a percentage point, which affects 5.8 million borrowers.

While students cheered for Obama's plan, some are still worried.

"By the time I graduate, my interest rate is gong to be astronomical, especially when you don't have a job," said Anna Van Pelt, 24, a graduate student from the University of Colorado, Denver who attended the speech.

The plan will be applicable to those who took out a loan in between 2008 and 2012 and those who take out a loan later than 2012, according to the Education Department. The consolidated loan will only be in practice for those who took out a direct loan from the government and a loan from the Federal Family Education Loan program.

"It's a really important issue because no one wants to start off their real life, their professional careers with loans on their backs," said Hassan Ebrahim, a student at the University of Southern California.

Student loans recently surpassed $1 trillion, making them the second highest source of household debt.

The College Board also announced Wednesday that the average in-state tuition and fees for a public school rose by $631 or 8.3 percent. The cost of a full credit load has passed $8,000, an all-time high.

The loan borrowers that are affected should be able to save several hundred dollars a month in payment, but Republicans are not in favor of the proposed plan.

"We are left with more questions than answers," said Senator Mike Enzi.

Many Republicans believe that this change is a result of poor customer service for borrowers, and the only way to reduce the student loan debt is to slow down the growth of tuition through health care costs and mandates that are using up state dollars that supported public colleges and universities in the past.

"I'm not sure his training qualifies him properly to deal with our intense economic climate. He's a lawyer, he taught at the University of Chicago. He's brilliant, but not an economist," said Joshua Niell, a student at USC.

Though the new measure faces dissent, Mr. Obama said Wednesday that the economy needs this new regulation to not only help individuals, but the nation as a whole. With less debt burdens, the White House said graduates will have more money for other purchases, such as homes.