Will Obama's Executive Order on Student Loans Pay Off for You?

President Barack Obama has signed an executive order to lessen student loan obligations for as many as 5 million federal borrowers, calling on Congress to take similar steps. The order directs the Secretary of Education to propose changes in student loan regulations that would potentially cap payments at 10 percent of each borrower's monthly income. But how will this new student loan order affect actual borrowers?

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Lowering the Repayment Cap

For federal student loans, there are a number of payment plans offered for borrowers to meet their loan obligations. One is called Income Based Repayment (IBR), which allows students with lower incomes to cap their monthly loan payments at 15 percent of their monthly income. This new executive order would allow the payment cap to be lowered from 15 percent to 10 percent -- by December 31, 2015. While it may happen earlier, the executive order's stated goal for lowering the cap is still more than a year off for borrowers. Critics might point out that this change in payment options was proposed to be available in 2012, so many borrowers aren't exactly holding their breaths waiting.

Who's Eligible?

The proposed changes will not affect all student loan borrowers. According to SFGate, the Pay as You Earn program is only available to those who:

• Took out their first federal direct student loan (from Department of Education) after September 30, 2007, and
• Took out at least one more federal direct student loan after September 30, 2011.

A White House "Fact Sheet" on the topic recognizes that students with "older loans" won't have access to these new changes, but they will still be able to utilize "similar, less generous options."

Loan Forgiveness Options

The new order doesn't change much about the various loan forgiveness options available to federal student loan borrowers. Loans may be forgiven after:

• 20 years for those in the Pay as You Earn program;
• 10 years for those in public service positions; and
• 25 years for those in the IBR program.

The White House Fact Sheet also mentions partnering with Intuit's Mint.com, a free online financial management product, to communicate with student loan borrowers about their options. With more than half of student loan recipients still paying them off, this order may be a step in the right direction. Related Resources:

• Obama moves to ease student loan burdens, urges Congress to act (Reuters)
• Student Loan Rates Rising: What Can You Do? (FindLaw's Law and Daily Life)
• What Happens If You Default on Student Loans? (FindLaw's Law and Daily Life)
• 5 Strategies to Manage Your Student Loans (FindLaw's Law and Daily Life)