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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.

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 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 spent on poor and minority student funding and boost college funding
Repayment Plans

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

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

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)

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)

Payment as per this Student Loan Forgiveness Obama plan is strictly based on the borrower’s family size and income, meaning interest rate and loan balance have no effect. 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 typically has the lowest monthly payment, which is also based on the borrower’s income, except 10% of the person’s discretionary income will be paid instead of the 15% used paid in IBR. The catch is, this repayment plan follows stricter qualifying rules than the rest.

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. 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 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. How much is forgiven depends on the original loan amount, the borrower’s current income, and how much this income fluctuated during the repayment term.