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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. Keep in mind that only federal student loans are affected by all programs, excluding loans provided by private institutions.

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

> Eligibility for student loan forgiveness after 20 years instead of 25 years on qualifying payments

> Money to be used for funding poor and minority students and boosting college funding
Repayment Plans

Borrowers are given the following repayment options under the Student Loan Forgiveness Obama program:

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 pay less than the standard repayment plan, but the total loan amount will slowly increase every two years.

3. Income Contingent(ICR)

Payments will be computed based on the borrower’s income and family size, the outstanding loan balance, and interest rate under this Student Loan Forgiveness Obama plan option.

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 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, there are much stricter qualifying rules under this plan compared to 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. 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 would range from 20 to 25 years, depending on the repayment plan chosen and the original date of the loans. 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.