As mid-market companies face a shortage of skilled workers, President Obama signed an executive order Monday making it a little easier for student loan borrowers to repay their debts. While the move won’t make college any cheaper, it will make student loans easier to pay off, which could encourage more young workers to pursue a higher education.
The move follows federal initiatives in April to increase incentives for job-training programs like apprenticeships at the nation’s community colleges. The U.S. is facing an expected shortage of 3 million workers with associate degrees or higher by 2020.
Monday’s executive order will allow 5 million borrowers to cap their student loan payments at 10 percent of their monthly incomes beginning in December 2015. It expands the federal government’s 2010 Pay As You Earn program, which allows borrowers to tie payments to income and qualify for loan forgiveness.
Although a new study shows the cost of college is worth it – with the average U.S. college graduate reaping $800,000 more than the average high school graduate over a lifetime, tuition costs have soared over 500 percent in the last three decades.
After the financial recession wiped out household savings and home equity that families could use to pay for college, students began to rely more heavily on student loans, reports the New York Times. As a result, student debt has doubled since 2007 to reach a staggering $1.2 trillion. And of the 40 million student loan borrowers in the U.S., 7 million are now defaulting on those loans.
“I’ve heard from too many young people who are frustrated that they’ve done everything they were supposed to do — and now they’re paying the price,” Obama said.
Although the President called on Congress to “do its part,” he also said he wasn’t waiting around for that to happen. That turned out to be a smart move, as Senate Republicans blocked a student loan bill on Wednesday that would have allowed borrowers to refinance their student loans at today’s lower interest rates, like homeowners and businesses can already do.
The Bank on Students Emergency Loan Refinancing Act, sponsored by Sen. Elizabeth Warren, D-Mass., would have been paid for with a new minimum tax on millionaires and billionaires, which effectively killed the legislation. Still, the White House claims Warren’s bill could have helped about 25 million borrowers each save $2,000 over the lifetime of their loans, infusing $50 million into the national economy.
This may be where mid-market companies stand to benefit the most from the new legislation. While easing repayments of student loans may increase the number of skilled workers, a boost in consumer spending power could enable more businesses to offer higher wages and attract more skilled workers. It would certainly be a welcome change in sectors like advanced manufacturing where skill demand is high but compensation remains low. Currently, in spite of steep expectations for a worker’s level of education, some manufacturing companies offer starting pay that’s less than a McDonalds’ Shift Manager would earn, reports Adam Davidson in The New York Times Magazine.
To close the skills gap, companies, schools, and the government will all have to do their parts. Companies will need to offer wages that reflect the importance of the jobs they’re trying to fill, but they’ll also need educated workers with the right skills and training to fill those jobs. Meanwhile, college tuitions need to be not just easier to pay off, but easier to afford in the first place.
That makes this week’s move to ease student debt an important step – but by no means a final one – in helping mid-size employers and their employees make their best matches, and close the gap between highly skilled workers and highly paid jobs.