Kendra Sayles already has earned three university degrees, and she’s pursuing one more.
But as the University of Pittsburgh student works toward a dual Ph.D. in regenerative medicine and nursing, she also has about $25,000 in unpaid loans from her undergraduate years.
On Monday, President Barack Obama announced and signed an executive order aimed to help people such as Ms. Sayles.
His remarks came days before Senate consideration of a bill that would allow about 25 million Americans to refinance unpaid student loans with lower interest rates. The Congressional Budget Office estimates that while the proposal will cost the government $58 billion over a decade, it also will garner $72 billion in taxes on higher-income brackets.
In his speech, President Obama mandated three actions. First, he said Secretary of Education Arne Duncan will try to expand the 2010 law limiting borrowers’ repayments at 10 percent of their income -- indicating steps to make the existing “Pay As You Earn” plan available to an additional 5 million Americans by heightening the threshold.
Second, he said the federal government will renegotiate contracts with loan companies such as Sallie Mae to provide better customer service and support. He also promised to engage the education and treasury departments, as well as tax preparation firms, to ensure that students make informed decisions about the best loan packages for their individual situations.
President Obama highlighted a need to support students who wouldn't be able to pay for college without borrowing money.
“Everything I do is aimed toward reversing those trends that put a greater burden on the middle class and are diminishing the number of ladders to get into the middle class,” Mr. Obama said on Monday. “If somebody plays by the rules [and goes to college], they shouldn’t be punished for it.”
These steps are particularly important for students in Pennsylvania, where they assume an average debt of $31,675 -- the third highest figure in the country -- according to the Institute for College Access & Success.
For her student loans, Ms. Sayles pays $150 to $200 each month just to avoid capitalization, which she described as “interest on interest on interest.” These payments leave her “sitting stagnant;” they don’t reduce the amounts on any of her primary federal loans. If she hoped to make headway on those, she said she would need to pay $300 to $400 monthly.
For Kruti Patel, a rising Pitt senior from New Jersey, the cost of higher education plays an important role in determining her academic path.
Ms. Patel considered changing her major last year but decided against it because pursuing a new track would require an extra year of schooling. An extra year would mean additional costs.
She hopes to go to law school after college. Again, she will have to take the price of tuition into account.
“[University of Pittsburgh School of Law] is really up there in cost -- it’s a really big factor in the decision for me,” she said. “I never thought that it would be.”
Abby Perrott transferred from Cornell University to Pitt last semester, citing the large cost difference between the two institutions as one reason for the move.
She has had to take out $1,000 in loans for her schooling at Pitt, but Ms. Perrott said that number would be much greater at Cornell.
“Cornell is three times more expensive,” Ms. Perrott said.
Sharing accurate loan information, the third action in the presidential memorandum, will help students navigate multiple plans and confusing packages.
To address this issue, President Obama pledged to engage large firms such as H&R Block to educate potential borrowers about their options. He also will personally field questions from students during a live Tumblr session today.
“We’re doing more to help every borrower know all the options that are out there,” he said.
Ms. Sayles observed that many students are uninformed about the strategies available to them when it comes to repaying loans.
“A lot of people are just as naive about the government’s work on this as I am,” she said.
During his speech, Mr. Obama expressed frustration with Republican efforts to block legislation that would help students refinance old loans at lower interest rates.
He referenced the Senate bill, which might be voted down due to some reluctance to increase taxes for higher-income brackets.
“If you’re a big oil company, they’ll go to bat for you,” said the president. “If you’re a student, good luck.”
High interest rates are among the chief concerns for individuals paying off their loans.
Janak Carey, a master’s student at the University of California, said these rates should ideally be at 0 percent for education loans. He added that the 6.5 percent interest on money he used for his education is more than the rates on any of his other debt.
The government should limit the percentage of capitalization -- compounding interest -- that can occur, Ms. Sayles said
Mr. Obama said he signed the executive order on “behalf of every striving young American who shares my belief that this is a place where you can still make it if you try.”
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