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An Overview 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. 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:

> Zero subsidies to private lending institutions for loans backed by the federal government

> 10% of borrowers’ discretionary income to pay off loans that started 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

The Student Loan Forgiveness Obama provides borrowers five options for repayment:

1. Standard Repayment

The borrower will pay a permanent amount every month month for the 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. 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 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, there are much stricter qualifying rules under this plan compared to 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. This amount can sum up to as much as thousands of dollars, depending on the type of payment for which the borrower is qualified, and on the loan balance.

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 term of the loan goes between 20 to 25 years, depending on the original date of the loan and the repayment plan selected. 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.

Cite: http://www.raechic.com/