Essential Information on 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. Keep in mind that only federal student loans are affected by all programs, excluding loans provided by private institutions.
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 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
The Student Loan Forgiveness Obama provides borrowers five options for repayment:
1. Standard Repayment
The borrower pays a fixed amount monthly for the entire 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
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 often has the least monthly payment, and is based as well on income; however 10% of the borrower’s discretionary income will be paid instead of 15% in IBR. The catch is, this repayment plan follows stricter qualifying rules than the rest.
Under the Student Loan Forgiveness Obama program, interest in the IBR will be totally separate from the direct loan’s subsidized portion. This rule only affects the first three years of the borrower’s IBR payment, however, and only if this is less than what is usually due in interest. This amount can be as much thousands of dollars in total, depending on the loan balance and the type of payment the borrower is qualify for at present.
End-of-Term Student Loan Forgiveness
Under the Income Contingent, Pay As You Earn or Income Based repayment plan, any loan balance by the end of the term will 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. 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.