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

The following are some of the changes President Obama implemented:

> 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 shortened 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

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

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. 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.

Interest Forgiveness

Based on the Student Loan Forgiveness Obama program, interest in the IBR will be fully independent from the direct loan’s subsidized portion. 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

If a borrower has a remaining balance by the end of the term under the Pay As You Earn, Income Contingent or Income Based plan, it will be automatically 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.

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