Obama EO on student loan relief doesn't go far enough

June 16, 2014

In her Economic View "Finding Shock Absorbers for Student Debt," published June 15 in the Sunday business section of The New York Times, Susan Dynarski explains why President Obama's recent executive order aimed at easing the debt burden for millions of student loan borrowers doesn't go far enough. Student loan payments should be adjusted automatically, just like Social Security contributions and tax payments, argues Dynarski.

"Recent graduates had the bad luck of graduating into a recession," writes Dynarski. "Tough job markets are hard on young people, who bear the brunt of unemployment and dropping wages." While these young people are likely to find employment in the long term, Dynarski argues that we need to help them in the short term by allowing student-loan payments to rise and fall with income. "If borrowers hit a tough spell, payments should drop automatically. If they score well-paying jobs, payments should rise."

In theory, she writes, Obama's Pay As You Earn program (PAYE) should hold payments to 10 percent of income; but in reality, it won't. Borrowers will have to work through loan servicing companies to apply for relief, and those servicing companies have been slow to respond. "The number of borrowers in flexible repayment plans is much lower than the number in distress and default, which shows that the current system isn't working to insure borrowers against risk." Instead, Dynarski advocates for making loan payment adjustments automatic, pointing to the Automatic for the Borrower proposal released in March by a network of nonprofit groups.

Susan Dynarski is a professor of public policy at the Gerald R. Ford School of Public Policy, and a professor of education and economics at the University of Michigan. She is co-founder of the Education Policy Initiative, which engages in applied, policy-relevant education research designed to improve overall educational achievement and outcomes, and has advised the Obama Administration on the findings of her student-aid research.