Obama Sidesteps Congress to Expand Student Loan Repayment Program

Expanding the Pay As You Earn program is expected to help 5 million more borrowers.

President Barack Obama, joined by college students, speaks in the Rose Garden of the White House in Washington, Friday, May 31, 2013, where he called on Congress to keep federally subsidized student loans rates from doubling on July 1.

Joined by college students, President Barack Obama in May 2013 called on Congress to keep student loan rates from doubling. Obama plans to announce the expansion a federal loan repayment program to 5 million more students Monday.

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Student loan issues will take center stage Monday, as President Barack Obama plans to circumvent Congress in issuing several new executive actions to reduce the debt burden of student borrowers.

Obama plans to announce several changes during remarks at the White House Monday, including the expansion of the federal Pay As You Earn program to all federal student loan borrowers, allowing them to cap monthly student loan payments at 10 percent of their incomes. The change is expected to affect up to 5 million additional borrowers and will be available by December 2015, the White House said. Obama will also direct Education Secretary Arne Duncan to take actions such as promoting awareness of repayment options and automatically lowering interest rates for active-duty military without the need for additional paperwork.

[READ: Education Department Teams With Treasury, Intuit to Help Student Borrowers]

Obama said during his weekly address on Saturday that he would take matters into his own hands to help student borrowers, as Congress decides whether it will take action on a proposed bill to allow for refinancing of student loans.

"This is commencement season, a time for graduates and their families to celebrate one of the greatest achievements of a young person's life," Obama said. "But for many graduates, it also means feeling trapped by a whole lot of student debt. And we've got to do more to lift that burden."

Anne Johnson – executive director of Generation Progress, the youth division of the Center for American Progress – says Obama's plans to expand the repayment program and support the refinancing bill are exciting developments.

"There are so many loans right now that are held by 40 million people in the United States ... and many of those loans are locked in interest rates that are well above the market rate," Johnson says. "They're both really important actions that need to be taken to help existing borrowers, and we're thrilled the president is taking action today."

More than 7 in 10 college seniors in 2012 graduated with some amount of student loan debt, which was $29,400 on average. Nationwide, outstanding student loan debt totals to more than $1.2 trillion, surpassing credit card or auto loan debt.

[RELATED: Democratic Senators Announce Ambitious Student Debt Agenda]

Currently, the Pay As You Earn income-based repayment option, which began in December 2012, is not available to students with older loans – those who borrowed before October 2007 or those who have not borrowed since October 2011. But an analysis the Consumer Financial Protection Bureau published in October shows many income-based repayment plans are underutilized: Fewer than 50,000 borrowers were enrolled in the Pay As You Earn program. Experts have said many students don't enroll in the programs because they are confused about the process or are simply unaware of their options.

A new survey from Black Book Market Research to be released Friday found 94 percent of working college graduates since 2008 said their student loan payments are "not manageable" at their current rate of pay, and two-thirds said they believe they're earning half or less of what they expected to make at this point in their early careers. Still, nearly all students with disproportionate debt-to-income situations (those with more than $100,000 in debt, who make less than $50,000 per year) said they believe the federal government will completely relieve them of their debt. 

But large amounts of debt also appear to negatively affect graduates' chances of being hired. Black Book also polled employers and found more than two-thirds of employers have "little to no interest" in candidates with more than $50,000 in student loan debt, because they may be more likely to jump jobs to a higher paying position soon after being hired. 

Nearly all employers surveyed said they pull the credit histories of applicants to get an idea of how much student loan debt they have.

"Right or wrong, in the current state of economic recovery ... it's realistic for employers to protect their productivity levels with stable, highly functional, focused and loyal staff," said Doug Brown, managing partner of Black Book, in a statement. "I expect we will soon see allegations of discriminatory hiring practices over a brand, new handicap ... being deemed unemployable for taking out too much money to buy a college degree." 

Democratic lawmakers have taken several steps in recent months to refocus their efforts on the plight of student loan borrowers. Most recently, Sen. Elizabeth Warren, D-Mass., in May introduced a bill that would allow borrowers to refinance their federal or private student loans. 

While the bill has Democratic support, it's unlikely to gain the support of Republicans because it relies on raising taxes for millionaires. Still, Obama applauded the legislation during his weekly address and plans to urge Congress to pass the bill. 

[MORE: Private Student Lenders Expand Refinance Options]

"This country has always made a commitment to put a good education within the reach of all who are willing to work for it. That’s what made us an economic superpower. That’s what makes us special," Obama said. "And as long as I hold this office, I’ll keep fighting to give more young people the chance to earn their own piece of the American dream."

Still, Republicans aren't pleased with Obama's method to take action on student debt, or his plans to push Congress to pass Warren's bill. Sen. Lamar Alexander, a Tennessee Republican and the ranking member in the Senate's education committee, said in a statement Sunday that the GOP wants to work with Obama to address student debt problems, but not by raising taxes. 

"Republicans want to work with the President on the real student debt problems: overly complicated loan repayment programs, mostly caused by the Obama administration itself, and excessive borrowing, mostly caused by a very small percent of graduate students," Alexander said.

After months of partisan bickering and gridlock, members of Congress were able to come to a compromise to retroactively lower the interest rates of federal student loans, after rates doubled when legislators couldn't agree on a solution before a deadline passed and the law keeping interest rates low expired. Rather than having a fixed rate, the interest rates are now tied to the market and will fluctuate from year to year. 

"Hopefully [Obama] will work that way again instead of joining Senate Democrats' political stunt to give some former students a $1-a-day subsidy to help pay off loans while raising income taxes by $72 billion and increasing the federal debt by up to $420 billion," Alexander said.

[VIDEO: Student Loan Repayment Q-and-A]

But Johnson says she's hopeful that the bill will make its way through Congress.

"This is an issue that affects so many Americans, and we've seen in the last two years that Congress has been willing to take action to keep interest rates low for borrowers," Johnson says.

"This is an issue that matters to millions of Americans and when those people reach out and talk to their members of Congress and call their senators and tell them to lower their interest rates, there is possibility for this legislation to pass."