Under U.S. law, student loans, unlike credit-card debt or mortgages, can rarely be discharged in bankruptcy. Defaults can subject students to government confiscation of tax refunds and Social Security payments as well as paychecks.

Obama is scheduled to give a speech today at the University of Colorado's downtown Denver campus, outlining his student-debt plan.

In a press briefing late yesterday, U.S. Education Secretary Arne Duncan and White House domestic policy adviser Melody Barnes said the administration would institute a "Pay- as-You-Earn" plan that could reduce monthly payments for 1.6 million current college students and borrowers.

Starting next year, these new borrowers will be able to limit their monthly student-loan payments to 10 percent of their discretionary incomes, with the balance forgiven after 20 years, Duncan and Barnes said. That program was scheduled to take effect in 2014. Currently, students can cap their payments at 15 percent of discretionary income, with loans forgiven after 25 years. Under the new program, students could reduce their payments hundreds of dollars a month, Barnes said.

Also next year, students and recent college graduates who took out federal loans both directly from the government and through private lenders will be able to consolidate their loans with the Education Department and pay as much as half a percentage point less in interest, the administration said in a statement. About 6 million borrowers will be eligible.

The moves won't cost taxpayers because they will no longer pay subsidies to private lenders once students consolidate their loans with the federal government, Barnes said. The Obama administration in 2010 eliminated the role of private lenders in originating student loans.

Barnes and Duncan said they had the authority to enact the changes without congressional approval. In a statement yesterday, U.S. Representative Virginia Foxx, a North Carolina Republican, questioned that claim. In a hearing earlier in the day, she said eliminating the role of private lenders may have hurt student debt counseling and default-prevention services.

Mariana Mendes, 22, unemployed and living with her parents, has $10,000 in student-loan debt after graduating in May from Bates College in Lewiston, Maine, with a degree in art history.

The debt is forcing her to defer her dream of working in a museum because she can't afford to move out of her parent's home while she's paying off her loan, said Mendes, who was interviewed at the Occupy Wall Street protest in New York.

"If I didn't have debt, I would be somewhere else," Mendes said.

 

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