Presidential Executive Order to Cap Student Loan Payments in 2012

Federal student loan borrowers will soon have a little extra money in their wallets at the end of the month according to a report in today’s Washington Post. Later today in Denver President Obama is scheduled to announce that he will sign an executive order that will limit repayment of Department of Education loan to 10 percent of discretionary income beginning in January 2012. The executive order would accelerate timeline for the implementation of the new cap by two years. Currently, federal borrowers are only required to pay 15 percent of discretionary income toward government student loans. In 2010, Congress enacted a law that would have reduced the cap to 10 percent starting in 2014.

Invest those extra dollars wisely, recent college grads

For most former university student borrowers the change means one thing: Woo-hoo! Another year of Spring Break!

But seriously, the President’s decision reflects a grim labor market for recent (and even not-so-recent) college grads even as the cost of post-secondary education has continued to rise. Melody Barnes, President Obama’s domestic policy advisor noted that the move to step up the commencement of the new cap was in part based on more than 30,000 signatures on a White House website petition allowing citizens to lobby for policy changes.

Administration officials noted that the proposed executive order could impact more than 1.5 million student borrowers, reducing their monthly payments by as much as $100-$200 under a pay as you earn program. In addition, after 20 years, all residual debt will be forgiven—five years sooner than under current law. Also, some borrowers with two or more federal student loans will be able to consolidate these debts into one obligation, potentially reducing the interest they pay by as much as one-half percent.

While many in the ARM industry are likely to dismiss President Obama’s plan as just one more government handout to the spoiled youths of America, raised on entitlement and the MTV, consider this: 36 million U.S. citizens are on the hook to repay federal student loans, and that number increases every year. If even a small segment of folks who have saddled themselves with tens or even hundreds of thousands of dollars in government-backed education loan obligations have 50 extra bucks a month to spend at their discretion, perhaps—just perhaps—they’ll use that money wisely by paying down other types of debt—like past due credit card bills, child support payments, parking tickets, and wireless phone bills.

In related news…

The U.S. Department of Education is holding a Private Collection Agency (PCA) meeting in Washington today for ARM companies that collect delinquent student loans on behalf of the Federal government. Because the Department of Ed is more or less right in our backyard, insideARM.com’s Mike Bevel and Patrick Lunsford have made their way down to L’Enfant Plaza for the meeting. We anticipate their day will go something like this (in the words of Julian Reischl):

“After Babe’s great victory in the shepherding contest, Farmer Arthur Hoggett turns down all offers to make money with his pig’s talents. But when he gets hurt severely in the well, his wife has to take up farming. She does her best but cannot meet the bank’s requirements, which results in the necessity of getting back to Babe. Soon, Esme Hoggett is sitting in a plane headed for “the” city. There, Babe unwillingly causes deep trouble. He has to stay with Mrs. Hoggett in the only hotel in town that accepts pets. Friendly neighbors send officials who catch all animals from the hotel: cats, dogs, chimpanzees and many others. Babe, who managed to stay free, decides to help his new friends and gets unexpected help—not only by Ferdinand, who flew all the way to the city.”

Wait! That’s the plot of Babe: Pig in the City. In any event, Lunsford and Bevel are loose in DC. They’ll have important updates on the PCA meeting for our readers soon.

Until then: That’ll do, pig; that’ll do.

Michael Klozotsky is the managing editor of insideARM.com. He writes hefty checks to the U.S. Department of Education each and every month. He’s also on Twitter @mklozkgc.