Why Services Aren’t As Bad As You Think

Why Services Aren’t As Bad As You Think

An Overview of the Obama Student Loan Forgiveness Program

When President Obama tweaked some parts of the Direct Loan program in 2010 when he signed the Health Care and Education Reconciliation Act of 2010, he birthed the Obama Student Loan Forgiveness program. Note that all the programs only affect federal student loans and not private student loans.

Below are some of the changes implemented by President Obama:

> No more subsidies to private lenders for federally backed loans

> 10% of borrowers’ discretionary income as payment for loans that started in 2014

> Eligibility for student loan forgiveness after 20 years instead of 25 years on qualifying payments

> Money to be used for funding poor and minority students and boosting college funding
Repayment Plans

The Student Loan Forgiveness Obama program offers five repayment options for borrowers:

1. Standard Repayment

Every month, the borrower pays a fixed amount for the whole life of the loan. The payment will depend on the amount borrowed, interest rate, and the loan term.

2. Graduated Repayment

The borrower can pay less than the standard repayment plan, but the total loan amount will slowly increase every two years.

3. Income Contingent(ICR)

Under this Student Loan Forgiveness Obama plan option, the borrower will be able to pay based on the size of their income and family, their loan balance, and the interest rate.

4. Income Based(IBR)

The borrower’s income and family size are the only two bases for payment under this Student Loan Forgiveness Obama plan, which means loan balance and interest rate have no bearing. Fifteen percent of the borrower’s discretionary income will be paid to their federal student loans.

5. Pay As You Earn(PAYE)

This Student Loan Forgiveness Obama plan generally has the cheapest monthly payment, and based too on borrower’s income; however, only 10% of the loaner’s discretionary income must be paid as opposed to 15% in IBR. The catch is, this repayment plan follows stricter qualifying rules than the rest.

Interest Forgiveness

Interest in the IBR will be completely separate from the subsidized portion of the direct loan as per the Student Loan Forgiveness Obama program. Such rule, however, is only good for the first three years of the borrower’s IBR payment, and only if this payment does not exceed what is normally due as interest. This amount can sum up to as much as thousands of dollars, depending on the type of payment for which the borrower is qualified, and on the loan balance.

End-of-Term Student Loan Forgiveness

If a borrower has a remaining balance by the end of the term under the Pay As You Earn, Income Contingent or Income Based plan, it will be automatically forgiven. The loan’s term ranges from 20-25 years, depending on which repayment plan was chosen, and when the loans were borrowed originally. The amount to be forgiven will depend on the original loan amount, the present income of the borrower, and the extent of variations of this income throughout the repayment term.

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