Former President Barack Obama established a way to make it easier on college students to pay back their federal student loans. A federal report also showed that the government is expected to forgive $108 billion in student debt in the coming years. Click on the link below to view the videos with more in depth information.
If you have qualifying federal student loans, you may be able to reduce your payments, or have your loans forgiven, through Obama student loan reform. In 2010, President Obama signed into law the Health Care and Education Reconciliation Act, and ushered in a new era of student loan repayment and student loan forgiveness options. Rather than just reforming one single program, the act transformed nearly the entire student loan landscape.
Here’s how the act, which we’ll refer to as the Obama Student Loan Program, impacted federal student loans once it went into effect:
If you have federal student loans that qualify, the Standard Repayment Plan lets you pay off your loans at a fixed rate for 10 years, after which your loans will be paid off completely.
To qualify for the Income-Contingent Repayment (ICR) Plan, you’ll first need to have eligible federal student loans.
While the ICR Plan is ideal for anyone with a low income, there isn’t an income requirement associated with the plan. Through this program, your monthly payments are based on your discretionary income, or the amount you’d pay over 12 years on a fixed repayment plan.
There are two IBR programs available, including the original Income-Based Repayment (IBR) Plan and the IBR for New Borrowers Plan. Like other plans, you’ll need to have federal student loans that qualify, and you’ll also need to sign up for the program that is designed for when your loans originated.
For the IBR Plan, these are any loans made prior to July 1, 2014. IBR for New Borrowers, on the other hand, are for loans originating after that date.
Another requirement you will need to demonstrate is a partial financial hardship, which is based on your income, your state’s poverty level and your family size.
Through these programs, you can have your monthly payments capped at 10-15 percent of your discretionary income if you qualify, which is a huge benefit to struggling borrowers. Your payments will then be adjusted annually, but you could earn forgiveness after 20-25 years of qualified payments.
The PAYE Program offers those with qualifying federal student loans under financial hardship the ability to repay student loans made before October 1, 2007 – as well as disbursed or consolidated loans made on or after October 1, 2011 – at 10 percent of discretionary income.
The REPAYE Program is similar to the PAYE Program, but includes all qualifying federal student loans, regardless of their origination date. Like the PAYE Program, monthly payments through the REPAYE Program are capped at 10 percent of your discretionary income.
Both programs offer forgiveness after 20 years of qualifying payments, unless you have earned a graduate or professional degree, in which case you will need to make 25 years of consistent payments in order to qualify.
If you’re interested in reducing your monthly payments for a short period of time, the Graduated Repayment Plan, the Extended Fixed Repayment Plan and the Extended Graduated Repayment Plan may be able to help.
With qualifying federal loans, the Graduated Repayment Plan will reduce your payments for the first two years upon approval. During this time, you’ll only be making payments towards your loan’s interest.
Once the two years are up, more of your payments will go towards a loan’s principal, and your repayment period will be based on your balance.
If your student debt is more than $30,000, the Extended Fixed Repayment Program may help, as long as you have loans that qualify and don’t have any outstanding balances prior to October 7, 1998. For the first two years under this program, all your payments will be made towards your loan’s interest at a fixed payment amount. After two years, you’ll then begin paying towards your principal, and you’ll have up to 25 years to repay your loan.
The Extended Graduated Repayment Plan is similar to the Graduated Repayment Plan, except it gives you up to 25 years to repay your student loans, while keeping your monthly payments low for the first two years.
These plans are ideal for anyone who has a lower income and is expecting to make more money in the near future, or those who want to have more of their income to spend for the initial two years of each program.
If your career has you serving the public in a public service position, non-profit organization or similar agency, you may qualify for the Public Service Loan Forgiveness (PSLF) Program.
As a borrower of qualifying federal student loans, as well as working for a qualifying employer, you may be able to have your debt erased completely after making 120 consistent, on-time payments. This means that within 10 years of making student loan payments, you could have the remainder of your debt forgiven – and you won’t have to claim it on your taxes, either.
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