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An Overview of the Obama Student Loan Forgiveness Program

When President Obama changed part of the Direct Loan program in 2010 as he signed the Health Care and Education Reconciliation Act of 2010, the Obama Student Loan Forgiveness program was born. Note that all the programs only affect federal student loans and not private student loans.

These are some of the changes that have been implemented under President Obama:

> No more subsidies given to private lending institutions for federally supported loans

> 10% of borrowers’ discretionary income to be paid for loans that began in 2014

> Student loan forgiveness eligibility period reduced from 25 years to 20 years on qualifying payments

> Money to be used to increase college funding and subsidize poor and minority students
Repayment Plans

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

1. Standard Repayment

The borrower will pay a permanent amount every month month for the life of the loan. The payment will depend on the amount borrowed, interest rate, and the loan term.

2. Graduated Repayment

While the borrower can pay lower than the standard repayment plan, the total amount to be paid off will increase every two years.

3. Income Contingent(ICR)

The borrower can pay, depending on the size of their family and their income, the remaining loan balance, and the interest rate as per this plan option of the Student Loan Forgiveness Obama program.

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

Under the Student Loan Forgiveness Obama program, interest in the IBR will be totally separate from the direct loan’s subsidized portion. However, this rule only covers the first three years of the borrower’s IBR payment, and only if such payment is lower than what is typically due in 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

Under the Income Based, Pay As You Earn and Income Contingent repayment plans, any remaining balance at the end of the term would be forgiven. The loan’s term ranges from 20-25 years, depending on which repayment plan was chosen, and when the loans were borrowed originally. How much would be forgiven depends on the amount of the loan, as well as the borrower’s present income, and the variations in the borrower’s income within the repayment period.