Obama’s Big Week on Student Loans Should Worry Public Servants

Michael Lux Blog, News, Student Loans 0 Comments

This week President Obama dedicated a lot of time and energy into student loan reform.  Even if his goals are not met, and legislation isn’t passed, bringing some awareness to the issue is definitely a step forward.  However, he seems poised to take a major step backwards on the Public Service Loan Forgiveness program.

As the law currently stands, individuals who work 10 years in a public service position and make on-time payments on a qualifying repayment plan, get their student loans forgiven… all of them.  This law was actually signed into existence by President George W. Bush, and its purpose was to encourage qualified people to pass on more lucrative positions in order to take jobs that benefit the public good.

Lost in the chaos of all the recent student loan news is the fact the Public Service Loan Forgiveness program, in its current state, is in very real danger.  Three key pieces of information point us in that direction.

1.) Obama’s budget called for a cap on the student loan forgiveness program.

Though some concern was raised about this particular provision, the general consensus was that there was no need for concern.  The President’s budget is merely a political document, and it is far from law.  It merely represents his ideas.  On the subject of student loans, Obama’s budget suggested two key changes.  The first was to expand the Pay As You Earn (PAYE) repayment plan so that all borrowers of federal loans could lower their monthly payments to 10% of their discretionary income.  This measure would lower the monthly payments on student loans for approximately 5 million borrowers.  The second change was to cap the maximum forgiveness under the Public Service Loan Forgiveness program.

For the many public servants who were counting on full forgiveness of their loans, this was obviously a troubling development.  However, Obama’s budget never became law, and neither of his proposed changes were adopted by Congress at the time.

[Further Reading: A Public Servant’s Open Letter to the President]

2.) Obama issues an executive order expanding PAYE.

This week, President Obama ordered the Secretary of Education to expand the PAYE program by the end of 2015.  This will result in lower payments for millions of borrowers… definitely a good thing.

The scary part about this is that it is exactly what Obama called for in his budget.  PAYE will now apply to everyone, and monthly payments will be lowered to 10%.  This order means that half of his proposed student loan changes have become a reality.  The remaining step is capping public service forgiveness.

3.) When discussing student loans, Obama avoids discussing the Public Service Loan Forgiveness program.

In order to bring some attention to the steps taken to address student loans, President Obama did an hour long Q and A on tumbler.  One student asked specifically about student loans and getting more people into public service.  The President talked about the value of public service and discussed specific programs for teachers and doctors, but made no mention of the Public Service Loan Forgiveness program.

The terrifying part here is that Obama was in front of a very friendly audience touting his efforts on student loans and his desire to educate people on the programs available.  The question clearly called for a response taking about the Public Service Forgiveness program, but Obama completely avoided mentioning it.  That means one of two things, either he is completely ignorant to its existence (which seems highly unlikely), or he didn’t want to mention the program because he plans on either eliminating it or gutting it.

The good news for public servants is that nothing has happened yet.  The bad news is that it is becoming clear that Obama has no interest or desire to continue the Public Service Loan Forgiveness program.  With Republicans already complaining about student loan spending, it seems highly unlikely that they would oppose cutting the program.

The tide is shifting, and for public servants, things seem to be headed in the wrong direction.