Basics 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.
The following are some of the changes President Obama implemented:
> No more subsidies to private lenders for federally backed loans
> 10% of borrowers’ discretionary income to be paid for loans that began 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
Borrowers are given the following repayment options under the Student Loan Forgiveness Obama program:
1. Standard Repayment
Every month, the borrower pays a fixed amount for the whole life of the loan. Payment will be computed based on the amount of money borrowed, the interest rate, and the loan term.
2. Graduated Repayment
The borrower can make payments smaller than the standard repayment plan, but the total amount will increase gradually every two years.
3. Income Contingent(ICR)
Payments will be computed based on the borrower’s income and family size, the outstanding loan balance, and interest rate under this Student Loan Forgiveness Obama plan option.
4. Income Based(IBR)
Payment under this Student Loan Forgiveness Obama plan is exclusively based on the borrower’s income and family size, which indicates that interest rate and loan balance will have no effect. Federal income loans will be paid with 15% of the borrower’s discretionary income.
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.
Based on the Student Loan Forgiveness Obama program, interest in the IBR will be fully independent 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. Depending on what type of payment the borrower is qualified for, as well as on the loan balance, this amount can total to up to thousands of dollars.
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.