President Obama's Students Loan Program Overhaul

President Barack Obama on October 26, 2011, by Executive Order, unveiled a students loan program overhaul that would have two main components.

First Component
His administration would accelerate a measure passed by Congress last year (2010) that would decrease maximum payment on student loans from 15% of the discretionary income to 10% of the discretionary income. The White House wants the measure to go into effect in 2012 instead of 2014. In addition, remaining debt will be forgiven after 20 years instead of originally crafted 25 years. About 1.6 million borrowers will be affected.

Second Component
This will help borrowers to consolidate loans from Family Education Loan Program (FELP) and a direct loan from the government into one loan, with consolidated loan up to half-a-percentage point less. This will affect 5.8 million borrowers.

In 2010, Congress passed a law that reduced the cap and converted into direct lending by eliminating banks as middlemen. Before that private lenders would get loan from the government, or from FELP loans from other private lenders but backed by government, and then disburse them among students.