Valuable Lessons I’ve Learned About Loans

Basics 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. It’s important to remember that all the programs only cover federal and not private student loan borrowers.

These are some of the changes that have been implemented under 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 to increase college funding and subsidize poor and minority students
Repayment Plans

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 based on you’re the borrowed amount and interest rate, as well as the term of the loan.

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)

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)

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. The borrower must pay 15% of their discretionary income 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, qualifying rules for this plan are stricter than the others.

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. 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. 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.