How Does the President's Student Loan Program Affect Me?

Find out if you qualify for the program that could lower your monthly payments.

Posted: 11/03/2011 11:54 AM EDT
Barack Obama Student Loans Speech

Under President Obama’s recently announced “Pay as You Earn” student loan payback proposal, an estimated six million students and recent graduates will be able to consolidate their loans and immediately reduce their interest rates as soon as 2012. The Obama administration hopes to use the program as a way to make student loan payments more manageable and to help boost the economy. What are the specifics of that program? BET.com breaks them down for you, plus video of Secretary of Education Arne Duncan discussing the plan:

What exactly did President Obama announce?

 

In his 2010 State of the Union address, the president proposed an improved income-based repayment (IBR) plan. The plan allows student loan borrowers to cap their monthly loan payments at 15 percent of their discretionary income. Congress quickly passed the legislation last year, but on Oct. 26, President Obama issued an executive order implementing the “Pay as You Earn” proposal, which will accelerate the benefits of the IBR plan.

 

Beginning on July 1, 2014, the IBR plan was scheduled to reduce the loan cap limit from 15 percent to 10 percent, but under the president’s new announcement, loan borrowers will be able to cap their loans at 10 percent of their discretionary income as soon as 2012.

 

Who is eligible?

 

People whose federal student loan debt is high relative to their income and family size are eligible.

 

The U.S. Department of Education’s IBR calculator can estimate whether you are likely to qualify for the plan. If the monthly payment you pay on your eligible loans under a 10-year-standard repayment plan is higher than the amount calculated, then you are eligible to repay your loans under IBR.

 

Students can find out if they are currently eligible for IBR at www.studentaid.ed.gov/ibr.

The government has published a helpful chart showing what monthly payments will be for different annual income levels and family sizes.

 

What are the benefits of this program?

 

− Under the plan, your monthly payment will be less than the amount you would be required to pay under a 10-year standard repayment plan.

 

− If your payment amount each month does not cover the interest that accrues on your loans, the government will pay your unpaid accrued interest on your Subsidized Stafford Loans for up to three consecutive years from the date you began repaying under the new plan.

 

− If you repay under the IBR plan for 20 years, any remaining balance will be canceled.

 

− If you work full-time in public service and make on-time, full monthly payments under IBR, your loans will be forgiven after 10 years. For more information about this program, review the Department’s Public Service Loan Forgiveness Program Fact Sheet.

 

What are the disadvantages of IBR?

 

− Because you are paying your loans less quickly, you pay more interest. Although the interest may be reduced while IBR makes payments toward your interest, you ultimately will be paying more total interest over the life of the loan.

− You must provide updated information about your income and family size, every year. If you don’t, your monthly payment amount will be the amount you would be required to pay under a 10-year standard repayment plan.

 

How will enrolling in this program affect my monthly payments compared to the standard repayment plan?

 

It depends on your income, but a nurse who earns $45,000, for example, and has $60,000 in federal student loans can decrease the $690 she pays per month tremendously. Under the current arrangement, she would reduce her payments by $332 to $358, but under the “Pay as You Earn” plan she can reduce her payment by an additional $119 to $239 − a total reduction of $451 a month.

 

If income increases or decreases, will enrolling in IBR affect my payments over the life of the loan?

 

Yes. Your payments will be affected, but under the  plan, they will never be more than they would have been under the standard 10-year-repayment plan, considering that you are still eligible.

 

How do I sign up for IBR?

 

To sign up for the income-based repayment plan, call your loan service provider — the company that sends you your monthly student loan bills. If you do not know your provider you can search www.nslds.ed.gov  for a list of contact information for common servicers of student loans held by the Department of Education.

 

 

To contact or share story ideas with Danielle Wright, follow and tweet her at @DaniWrightTV.

(Photo: Jason Reed/Reuters)

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