With Pres. Obama Taking Action on Sen. Brown's Student Loan Bill, College Graduates Will Begin to See Relief from Student Loan Debt

Average Ohio Student Graduates With Nearly $26,000 in Debt—Tenth-Highest Amount in the United States

WASHINGTON, D.C. – More Ohio college students and graduates will soon be able to consolidate student loans and manage student loan debt as a result of new federal action. U.S. Sen. Sherrod Brown (D-OH) on Wednesday announced that his Student Loan Simplification Act was among the items included in a President Executive Order issued today that will make college more affordable by making it easier for students to manage and repay student loan debt. In addition to implementing Brown’s bill, President Obama announced a “Pay As You Earn” proposal that will reduce monthly payments by allowing students to cap their loan payments to 10 percent of their income beginning in 2012.

“Students shouldn’t have to sign away their financial futures when they sign up for college,” Brown said. “If we’re going to create jobs and improve our economy, we need to ensure that Ohio and the U.S. continue to produce and educate the innovators of the 21^st century. With two-thirds of Ohio students graduating with an average of nearly $26,000 in student loan debt, it’s past time we take action that makes college more affordable.”

Today, President Obama will sign an Executive Order that includes a series of initiatives to make college more affordable and help Americans manage student loan debt. Among them is Brown’s bill, the Student Loan Simplification and Opportunity Act of 2011. Brown’s proposal, which he introduced in May 2011, would give borrowers with both Federal Family Educational Loan (FFEL) student loan debt and Direct Loan debt the option to convert their FFEL loans to Direct Loans during a nine-month period. While conversion is not mandatory and students would not be required to consolidate their loans, those who do choose to make the conversion would receive up to 2 percent off the principal of their FFEL loan. According to the Congressional Budget Office (CBO), Brown’s legislation would lead to $1.8 billion in savings over 10 years by eliminating federal subsidies for FFEL lenders. The President’s proposal provides up to a .5 percent reduction in student loan interest rates.

President Obama also announced a “Pay As You Earn” proposal aimed at reducing monthly payments for more 1.5 million Americans with student loan debt. Under the proposal, borrowers will be able to reduce their monthly student loan payments to 10 percent of their discretionary income starting in 2014. But President Obama realizes that many students need relief sooner than that.  Under the proposal, 1.6 million students would be able to cap their loan payments at 10 percent starting next year, and the plan will forgive the balance of their debt after 20 years of payments. 

Loan Consolidation and Brown’s Student Loan Simplification Act

Last year, Congress passed the single largest federal investment in student aid—at no cost to taxpayers—by overhauling the federal financial aid system. By ending subsidies to private lenders through the Family Federal Education Loan (FFEL) program, the reform replaced these “middlemen” with direct loans to students—saving the federal government $68 billion over 11 years, allowing the maximum Pell Grant award to reach a historic high, and making student loans more manageable to repay by strengthening an Income-Based Repayment program.  

Over the past year, higher education institutions from across the nation have made the transition from the FFEL system to the Direct Loan program. While all students who borrowed starting July 1, 2010 or later will now only have to make one federal payment each month upon graduation, more than six million borrowers are currently wedged between these two student loan programs.  This requires them to make at least two payments to at least two separate servicers. Having multiple payments to multiple servicers can complicate the repayment process and increase the risk that a borrower may miss a payment and accrue financial penalties.

“When we passed the single largest investment in student aid last year all at no cost to taxpayers, Congress made a critical step toward ending wasteful subsidies to private lenders to service federal loans. It’s time to cut out the middleman once and for all by giving college graduates the chance to transfer debt to a Direct Loan Servicer,” Brown continued. “By empowering students to pay down student loan debt and consolidating their student loans, we’re making another step to help ensure that students can access higher education and by helping already-strained borrowers reduce their personal debt load.”

Nationally, there are 21 million eligible loans that would qualify for savings under Brown’s bill—most borrowers have more than one loan—and students would save up to $887 million due to the 2 percent reduction in principal of their FFEL loan. A list of average savings for students with loan debt follows.

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