WH: Expanding student loans could reduce their debt

The White House on Monday defended the expansion of a federal student program, claiming it might end up saving the government money in the long run.

President Obama is set to sign an executive order that will allow 5 million additional borrowers to qualify for a repayment program that caps monthly federal student loan payments at 10 percent of an individual’s discretionary income.

{mosads}Under the program, students working in certain public sector careers would only have to pay back their loans for 10 years — even if they have not paid back the full balance. Other low-income borrowers working in the private sector who continue to pay their loans on time for 20 years can see their remaining balance waived, as well.

Cecilia Munoz, the director of the White House’s domestic policy council, said Monday that despite the benefits, expanding the program to additional borrowers might not actually cost the government money. Because student borrowers are less likely to allow their loans to fall into delinquency or default, she argues, the administration can actually break even despite reducing the burden on borrowers.

“Because fewer students default as a result of these kinds of provisions, it ends up not necessarily costing funds in the end,” Munoz told MSNBC. “So this is both good for government programs, but especially good for students in helping them manage their debt.”

Under current policy, the payment plan is only available to those who borrowed since October 2007. But the president’s executive action will allow students with older loans to qualify.

Munoz said the White House would work with tax preparation firms like TurboTax and H&R Block to publicize the expansion.

“The average student graduates with about $29,000 of debt,” Munoz said. “That has a big impact not just on them and on their futures, but on the rest of us economically. We now owe more in student loan debt than in credit card debt in this country, in excess of a trillion dollars. It’s time to get that under control.”

Republicans dismissed the president’s move as a “gimmick.”

“Today’s much-hyped loophole closure does nothing to reduce the cost of pursuing a higher education, or improve access to federal student loans — nor will it help millions of recent graduates struggling to find jobs in the Obama economy,” House Speaker John Boehner (R-Ohio) said in a statement.