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

Below are some of the changes implemented by President Obama:

> 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

> 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 provides borrowers five options for repayment:

1. Standard Repayment

The borrower pays a fixed amount monthly for the entire 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)

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. 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, 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

Under the Income Based, Pay As You Earn and Income Contingent repayment plans, any remaining balance at the end of the term would 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. 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.