On Monday, President Obama will issue an executive order capping student loan payments at 10 percent of borrowers’ monthly income, a move that the White House expects will help over 5 million Americans struggling to repay their debt.
The order, first detailed on Saturday by the New York Times, will expand a 2010 law with the same cap to people with older loans. With this order, those who took out student loans before October 2007 or stopped borrowing by October 2011 will now be covered. The cap will not go into effect until December 2015 since the Department of Education must first propose specific regulations.
Total student loan debt hit $1 trillion last year, and more and more borrowers are defaulting on their loans. This has had a negative effect on not only borrowers but the economy in general, costing the country over $100 billion in economic activity. That means the economic costs of the current situation are larger than the estimated cost of capping payments at 10 percent, which the Congressional Budget Office puts at between $10 billion and $12 billion.
President Obama will also call for the passage of a Senate bill on Monday that, if passed, would allow borrowers to exchange high-rate loans for new loans with lower interest rates. The bill, sponsored by Sen. Elizabeth Warren (D-MA), would raise taxes on millionaires through the “Buffett Rule” to finance cutting interest payments in half for students paying back loans at a 6.8 percent rate. The bill will likely be up for a vote this week and currently has the support of 40 Senate Democrats.
Data released last month shows that students with large loan debts are less and less likely to take out home mortgages. If money students must use to repay loans went elsewhere, the Progressive Policy Institute estimates that those students could buy over 155,000 houses, which would stimulate the economy.
Abigail Bessler is an intern at ThinkProgress.