Lessons Learned from Years with Funds

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Basics of the Obama Student Loan Forgiveness Program

As President Obama modified a portion of the 2010 Direct Loan program upon signing the Health Care and Education Reconciliation Act of 2010, he gave rise to the Obama Student Loan Forgiveness program. 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 given to private lending institutions for federally supported loans

> 10% of borrowers’ discretionary income as payment for loans that started 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
Repayment Plans

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

1. Standard Repayment

Every month, the borrower pays a fixed amount for the whole 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)

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. 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 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, 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. Such rule, however, is only good for the first three years of the borrower’s IBR payment, and only if this payment does not exceed what is normally due as 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. 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.