Obama’s Student Loan Forgiveness Program

A Guide to the William D. Ford Act

WHAT IS PRESIDENT OBAMA’S STUDENT LOAN FORGIVENESS PROGRAM?

President Obama introduced his student loan forgiveness program in 2008. These programs offer significant advantages to borrowers with federal student loans. This includes:

  1. Fully Forgiven federal student loans once the borrower has made 240 monthly payments towards their student loan debt.
  2. The new Pay As You Earn Repayment Plan
  3. Reforms to the existing Public Service Loan Forgiveness Program (PSLF) which includes complete loan forgiveness after 120 consecutive monthly payments

Obama’s Student Loan Forgiveness program reforms are discussed in depth on this page. You’ll also find relevant news and information below. Be sure to refer back to this page often as there will be continuous updates and changes made to the programs.

Obama Student Loan Forgiveness

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OBAMA’S FORGIVENESS FOR FEDERAL STUDENT LOANS

When taking out their student loan debt, most students don’t realize the financial burden they’re signing up for. They see this debt as the path to a career they love and a better future. However, repayment begins shortly after college and it’s then borrowers understand what they’re up against.

President Obama has worked to alleviate this financial burden with his REPAYE program which allows those with Federal student loan debt to enroll in a payment plan to assist in the payback process. For many borrowers, this plan offers lower monthly payments and loan forgiveness. The lowest monthly payment is set at $0 a month which is available for those with low income.

This program was initially put in place for borrowers with loans starting in or after October 2007. It has since expanded to all borrowers with a federal student loan account.

The Pay As You Earn Student Loan Repayment Plan

The Pay As You Earn program or PAYE, offers students monthly payments based on their current income. When calculating what payment each borrower qualifies for, they take into account their discretionary income and family size and then set the payments to 10% of their monthly income. Most program lengths are set at 240 months (20 years). After all payments have been made while enrolled in the program, the remaining principal and interest is forgiven.

Public Service Loan Forgiveness Program Updates

Obama has reformed the Public Service Loan Forgiveness Program (PSLF) to assist those working for a non-profit or government agency. Although PSLF existed before Obama, those who now qualify will be eligible to have the remaining balance of their student loans forgiven after completing the 120 month program.

As you’ll notice, this program is half the length of the standard PAYE program set at 240 months. Those who work for a qualifying government or non-profit agency for the duration of the 120 months will qualify for this program. For more information about the PSLF program, check out our page here.

It only takes about 10 minutes to see if you qualify!

Call us at (800) 940-8911 or fill out the form on this page to speak to one of our representatives. It’s 100% free to see if you qualify for Obama’s student loan forgiveness, and only takes a few minutes.

HOW DOES PRESIDENT OBAMA’S STUDENT LOAN FORGIVENESS PROGRAM WORK?

While the Obama Student Loan Forgiveness Program may seem a bit confusing, what you need to know is Obama reformed the existing federal loan programs to assist borrowers in paying back their student loans.

The program has two main objectives: First, Obama wanted to ensure that students would continue taking out federal loans to help pay for college. If students felt the loan debt was too large of a burden to carry, they may be inclined to opt out of college altogether; a scenario he wanted to avoid at all costs.

The second motive behind the program is assisting those who already have student loan debt and are struggling to pay it back. If a student owes $30,000 in student loans, the lender generally asks for 1% of the total amount which in this case equals $300/month. This is simply not feasible for the majority of American’s; especially those living on lower incomes.

For some, they will qualify for a $0 monthly payment. This means they’ll be working towards their program length while paying nothing on the loan. Others will qualify for a reduced monthly payment which is set at 10% of their monthly income. The program takes into account borrowers family size, filing status and income.

Every 12 months the lender requests the borrowers tax returns which sets the monthly payment for the following year.

Verify Your Eligibility For Student Loan Forgivness

PRESIDENT OBAMA INCREASES ACCESS TO PAY AS YOU EARN

Last June, President Obama announced new changes to the federal student loan forgiveness program. One very important and valuable reform that was made is the Pay As You Earn Student Loan Repayment Plan, which is available to over five million additional borrowers.

The details of this objective include:

    • The Pay As You Earn repayment program, long known for having an October 2007 registration deadline, will have its eligibility criteria significant relaxed, meaning that anyone with federal student loan debt will quality, regardless of their enrollment date
    • Eligibility to enroll in the program will not open up until December 2015, so depending on your circumstances you may have to wait until the next cycle to apply

What is “Pay As You Earn”?

Strangely enough, the most negative aspect of President Obama’s student loan forgiveness program is that most people don’t even know it exists!

Unlike other programs like Obamacare, Pay As You Earn’s existence continues to be hidden by the general public, even though it is an incredibly valuable program.

Pay As You Earn is one of 7 Federal Student Loan Repayment Plans, and it is the newest. The program was first introduced as part of President Obama’s sweeping student loan reforms proposed in 2011, but it did not become official until 2012.

Borrowers on the Pay As You Earn repayment plan are lucky enough to receive considerable financial forgiveness. They are given a 10% cap on federal student loan repayments, which means that they could easily save thousands of dollars of their hard-earned discretionary income.

There is a downside to Pay As You Earn. Because it adds payments, it also extends the lifespan of the repayment period, making the total loan more expensive since interest has more time to accumulate additional debt.

However, borrowers can protect themselves from further debt by researching the specific details of Pay As You Earn. It also offers comprehensive student loan forgiveness once 20 full years of scheduled monthly payments have been made.

Additionally, workers in the public sector receive special benefits. Those graduates who are working for either the government or a nonprofit are offered student loan forgiveness after making just ten years’ worth of on-time payments.

Due to these particulars, this might not be the most universally appealing student loan repayment plan. It greatly depends on the specifics of every student’s specific situation. However, there is a certain demographic that it is popular with: those with excessive levels of student loan debt and no real hope to ever pay it off successfully. It considerably eases the stress of monthly payments for grads in this situation.

Obama Announces Support for Refinancing

In addition to implementing reforms and relaxing the limitations on Pay As You Earn, President Obama has also been vocal about his support for the Bank on Students Emergency Loan Refinance Act, first proposed by Massachusetts Democratic Senator Elizabeth Warren.

This act, should it pass, will ultimately change federal law to allow borrowers with government-backed student loans to refinance them at current interest rates. This is incredibly important because it will reduce monthly payments, similar to how PAYE does—but it will also reduce total outstanding debt.

Students who took out loans before interest rates plummeted will find this reform to be a particular comfort. This small but significant change could save them more than the PAYE plan would, and it would actually reduce their total debt.

While PAYE is a Band-Aid solution that only reduces monthly payments but ultimately increases total outstanding debt, this is a much more valuable reform. Keep an eye on it over the coming few months, and stay informed!

Proposed Updates

PRESIDENT OBAMA TO ANNOUNCE UPDATES TODAY

Media sources have provided information that suggests that President Obama will be announcing further updates to his student loan forgiveness program today.

An official in the White House has alerted the media that the updates will include the following:

  • Expanding the eligibility criteria for the Pay As You Earn Student Loan Repayment Plan, which caps monthly student loan payments at just 10% of discretionary income

President Obama will also allegedly be promoting a recent proposal from Senator Elizabeth Warren. This proposals suggests that borrowers should be able to refinance their federal student loans.

The official announcement will come today at 10:45 AM, PST, and we’ll provide you with the latest updates as they are released.

Feel free to check back soon for more information.

Proposed Changes in the Fiscal Year 2015 Budget

It appears quite likely that President Obama’s student loan forgiveness plan will soon go through another series of significant changes. Some of these will be positive, while others will undoubtedly continue to worry borrowers who are already feeling overpowered by their student loan debt.

The Obama Administration’s proposed budget for the fiscal year of 2015 is set to make a total of seven major changes to the student loan debt reforms that the President initially introduced a few years back. Three of these alterations appear to be positive, while another four will undoubtedly not be popular amongst two specific groups: high-income borrowers and public service workers.

Should Congress approve of the budget and not alter any of its proposed reforms, the following changes will occur.

POSITIVE CHANGES TO THE OBAMA STUDENT LOAN REFORMS

Three of the following major positive changes will occur if Congress approves this objective, and they will make many borrowers very happy.

  1. Pay As You Earn Will Be Made Available to Everyone

For many years, the ever-popular Pay As You Earn Plan (PAYE) was typically only available to those borrowers who met very specific criteria, and everyone else was forced out by default. Now, thankfully, the Obama administration is attempting to relax these restrictions and make this program available to a wider range of students.

Currently, if your student loans are any older than October 1, 2007, the Income-Based Student Loan Repayment Plan (IBR) is the most affordable of the various Student Loan Repayment Plans available to you, capping your monthly student loan payments at 15% of discretionary income. However, much to many borrowers’ disappointment, PAYE is not currently available to anyone with older loans.

If the aforementioned reform to the program is approved, those borrowers with student loans older than October 1, 2007 could potentially be able to receive the benefits that PAYE offers.

If the Obama Administration’s 2015 budget is approved, borrowers will get the chance to enroll in the new Pay As You Earn Student Loan Repayment Plan. This plan has a lower cap for monthly payments: only 10%. The difference of that small 5% can add up to a significant amount of savings each month. Additionally, PAYE will forgive your student loans after only 20 years, compared to IBR, which only provides forgiveness after 25.

In an economic climate where so many graduates today are seeking Federal Student Loan Debt Relief, these changes are highly significant.

In comparison to IBR, PAYE could increase the expense of your loans in the long run. This is important to keep in mind. Since your loan term will be extended and more interest will accumulate over the course of the loan, PAYE may not be the best option for everyone. Please note that in spite of this, if you’re planning on making 20 years of payments and eventually receiving Federal Student Loan Forgiveness, then you’ll end up saving money from switching off IBR to PAYE in the long run.

  1. Loan Forgiveness Won’t Bring Tax Penalties

A great deal of federal student loan borrowers will be pleased to learn the details surrounding this particular improvement in the national fight against the current crippling Student Loan Debt Crisis.

Previous loan forgiveness programs such as IBR and PAYE have disappointed borrowers for several reasons. One of the biggest failures with these programs is the fact that forgiven debt is still considered taxable income. This sneaky catch to loan forgiveness has cost many borrowers thousands of dollars in additional taxes.

Those borrowers with Direct Subsidized or Unsubsidized student loans whose minimum payments aren’t high enough to cover interest charges each month are often hit the hardest in this situation. The eventual “forgiven” balance could end up being far higher than the amount of money they originally borrowed, which creates more problems than it solves.

It seems completely unfair to suggest that someone who pays off their debts for 25 years ultimately deserves to be ripped off in this way, but this is the way loan forgiveness programs deliberately mislead students.

If the 2015 budget forms do go through, whatever debt eventually gets forgiven won’t incur a tax penalty for borrowers. In our opinion, this is the biggest benefit and the most crucial reform to President Obama’s loan forgiveness program that could possibly be implemented. We are very excited to potentially watch this take place.

  1. Monthly Interest Accrual Will Be Capped

A huge problem for many borrowers is interest. When your payments aren’t high enough to cover the interest that’s accumulating on the loan, “interest capitalization” occurs.

Basically, this is the process the banks use to intentionally increase the long-term costs of loans. They do this by adding the accrued interest to the original principal of the loan, which can end up increasing the expense of the loan in the long run.

It’s due to this sneaky law that some hardworking, committed borrowers still get tricked. It’s completely possible that you could make your payments in full and on time each month, but still end up owing more money. Does this seem fair?

It’s particularly problematic for those borrowers with Unsubsidized Loans who have been relying on Federal Deferments or Forbearance Programs, because the government will not cover the costs of their monthly interest accrual while their loans are on pause. This means that borrowers might be receiving excellent temporary debt relief, which looks good at first glance-but their long-term debt obligations will be increased due to interest capitalization.

In the worst-case scenario, you could end up borrowing a small amount, such as $25,000, in student loans–and then find yourself straddled with $250,000 of debt in as little as 15 years.

It is good news, then, that President Obama’s 2015 budget includes a provision set to cap interest accrual at just 50%. When a borrower’s monthly payment isn’t enough to cover the accumulating interest, this cap could end up being a very significant improvement.

Even if 50% interest accrual sounds extreme, there are no caps in place whatsoever right now. So this is very pleasant news for anyone having trouble making their monthly payments, especially for those relying on Deferments and Forbearance programs.

NEGATIVE CHANGES TO THE OBAMA STUDENT LOAN REFORMS

The proposed fiscal year budget, despite its improvements, has its downsides as well. Unfortunately, some detrimental changes will be put into place alongside the positive ones. These problems will be particularly severe for those borrowers hoping to take advantage of President Obama’s recent student loan reforms. In many cases, these are graduates with an extremely high amount of debt, and those who are seeking forgiveness under the Public Service Loan Forgiveness Program.

If the new budget is approved, here are the negative changes that you will see.

  1. Borrowers With High Debt Won’t Get Forgiveness As Early

Anyone with more than $57,000 in federal student loan debt will be negatively affected by this proposed 2015 budget.

According to the budget, especially high borrowers won’t be able to receive loan forgiveness under PAYE at the new 20-year mark. Instead, they will have to wait 25 years before their debt is completely forgiven.

You might be wondering how those five years could potentially make such a huge impact, but when you consider that borrowers with loans over $57,000 are the people who need forgiveness the most, it doesn’t seem at all fair to suggest that they should be forced to repay their loans over a longer period of time.

Experts who work for the government and for watchdog agencies are claiming that this will help protect the long-term sustainability of the PAYE program and the other federal forgiveness programs currently in place. From our perspective, it seems less clear. Plenty of the government’s funding goes towards other programs besides student loan forgiveness.

If you feel that this change could affect you negatively, please don’t hesitate to call, write, or email your respective U.S. Representative or Senators to share your views. Your voice matters!

  1. PSLF Forgiveness Will Be Capped at $57,000

Those borrowers who are using services provided by the Public Service Loan Forgiveness Program will be greatly affected by this one. However, if you are not using this program, this change will not affect you whatsoever, thankfully.

The new 2015 budget will cause a dramatic reduction in the “windfall benefit” built into the PSLF program and President Obama’s loan forgiveness reforms.

Instead of forgiving up to 100% of your federally-funded student loan debt, PSLF will now only allow you to write off a certain amount of debt. It is capped off at $57,000, which is still a significant amount of money, admittedly.

Many borrowers will be satisfied with this change as their debt is not this high, but for borrowers with greater debt, this will not be a positive change at all. It gets worse when you consider that public sector workers are impacted the most.

Some recent information suggests that this change won’t apply retroactively to anyone already enrolled in PSLF, so it’s possible that if you’ve been working towards loan forgiveness already, you may be entered into the protection portion of the program. Ideally, you will be able to write off the remainder of your debt in the future.

If you have doubts about this, we would highly suggest contacting whatever politician represents you and express your concerns.

  1. Only Income-Based Plan Payments Will Count Towards PSLF Forgiveness

It appears that President Obama is unconcerned about public sector workers. The impact of PSLF forgiveness benefits will be significantly lessened should this change occur.

Currently, PSLF forgiveness kicks in automatically if a borrower has made “scheduled, full, on-time monthly payments” for 10 years, regardless of which student loan repayment plan they were made under. This allows for a fair bit of freedom.

Sadly, under the proposed 2015 budget, certain monthly payments will not count toward that 10 years’ wroth of payments. Those made under one of the income-driven plans (Income-Based Repayment, Income-Contingent Repayment, Income-Sensitive Repayment or the Pay as You Earn Plan) will count, but anything else will not.

As many borrowers began on the other plans, made months or years of payments under them, and then switched to one of the qualifying plans later on, this could be very disappointing to many people.

Once again, if these changes are implemented, they very likely won’t be applied retroactively. If you’ve been paying your debts off consistently, in full, and on time, you probably won’t have anything to worry about.

  1. Married Borrowers Can’t Separate Income Anymore

There are advantages to stating that you are married on your tax returns and filing separately. This is especially true when one member of the couple is the sole breadwinner and makes significantly more than the other.

Under either of these income-driven plans, filing your taxes together would ensure that your incomes were lumped together when calculating your monthly student loan payment. If you include your well-paid spouse’s earnings on your tax return, your monthly payments will undoubtedly increase, even if your income is low.

The new budget seems be making it more difficult for couples to file separately.

Should the budget be approved and put into action, you won’t be able to file yours and your spouse’s taxes separately. You won’t be able to protect yourself from skyrocketing monthly payments.

On the bright side, filing jointly will make you and your spouse eligible to claim the standard Student Loan Interest Tax Deduction. As of 2014, that means no more than $2,500 per year, so it isn’t much, and if your spouse makes over $50,000 a year, this deduction seems ridiculously small and insignificant.

An increase in monthly payments will be unavoidable for married couples should this budget be approved.

President Obama Is Not Forgiving 100% Of Student Loans

No, but some are. Let me explain why: federal loans are paid for by the tax payer. If you forgive all loans for the 45 million Americans who have student loan debt, you would be throwing away roughly $1.3 Trillion. That means the tax payer is responsible for this money while paying for others to have a free education; something they didn’t receive  themselves.

What Obama has done is the next best thing which is having borrowers pay on the debts they willingly took out over a 120 – 240 month period of time. Those who qualify for the $0 monthly payment, for the duration of their program, will have ALL of their loans completely forgiven: this includes interest and principal.

THE STATE OF THE UNION SPEECH

President Obama’s student loan forgiveness plans are constantly in a state of evolution, but we do know that no major new updates were shared during his recent State of the Union address.

In fact, during his State of the Union speech delivered on January 28th, 2014, President Obama barely mentioned student loan debt at all, in spite of how great of a concern it is to many Americans.

Some media experts even suggested that his initial bold statements about the student loan forgiveness program may have been a bit premature, as he seemed to be backtracking a little during the State of the Union address—and indicating that he may not be able to implement such dramatic changes as he initially stated.

He said very clearly that he wishes to make higher education more accessible for every American, in spite of socio-economic background, but he did not mention specifics about how he planned to actually do this. Many political speeches as of late have skirted around the issue.

In any case, here is a comprehensive summary of the student loan reforms that President Obama previously announced. We also provide an expert analysis of what’s changing, who’s eligible to receive the benefits, and how to apply for the program.

Additional updates will be provided whenever the President offers more information, so please consider checking back regularly.

Attacking Excessive Student Loan Debt

President Obama’s student loan forgiveness program, for all its supposed faults, can still save you a lot of money.

The vast majority of students in the graduating class of 2014 will be saddled with a tremendous amount of student loan debt. A CNN Money article illustrates this, reported that the average student loan debt for college graduates in the United States now sits at $29,400.

A study by the Federal Reserve Bank of New York way back in 2012 revealed that even at that point, more than 10% of graduates owed more than $54,000 in student loans. 3% of them had accumulated more than $100,000 in debt.

These are very disturbing statistics. It is good news, then, that President Obama’s debt relief program offers relief to those struggling to pay off their excessive student loan debt. The program seeks to reduce their financial liability, allowing them to avoid falling into bankruptcy.

The main downside to the President’s program is the fact that only very few people will actually qualify for it. Restrictive eligibility guidelines are dashing many borrowers’ hopes of ever paying off their student loans.

TWO MAJOR BENEFITS OF OBAMA’S STUDENT LOAN REFORMS

President Obama’s plan for loan relief is extremely lucrative for those holding debt that was incurred within the restrictive eligibility window. Those who qualify will receive the following two major benefits:

  1. Student Loan Debt Forgiveness – After borrowers have made 240 payments over 20 full years that were complete, scheduled, and on time, whatever is left of their student loan debt will be forgiven entirely. It is important to note that the payment threshold is reduced even further to 120 payments for public service workers.
  2. Introduction of the “Pay As You Earn” Student Loan Repayment Plan – This plan limits monthly federal student loan payments to 10% of the borrowers discretionary income (defined as income above 150% of the poverty line for a borrower’s family size and location)

The total savings from these two simple reforms alone is estimated to be somewhere in the billions. Clearly, there are tremendous benefits for those who qualify.

PRESIDENT OBAMA’S STUDENT LOAN DEBT FORGIVENESS PLAN

Previous rules demanded that federal loans be forgiven after the borrower completed 300 full, on-time, scheduled payments across 25 years of payments, but the President’s new plan drops that restriction down to just 240 payments (20 years of payments), which will offer financial relief to many people.

Public service workers such as teachers, nurses, and military personnel will be pleased to note that the plan makes them eligible to have their outstanding balances forgiven after just 120 payments over a brief 10 years of payment.

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President Obama’s “Pay As You Earn” Plan

For those who qualify, the PAYE program allows borrowers to schedule their loan payments over a 20 year period of time. This obviously decreases their monthly payment making it affordable to pay and it gives them the flexibility to increase or decrease their monthly payments according to their income. If income goes up, so do the monthly payments.

This really helps those who have a lot of debt, lower incomes and fluctuating income levels. Having a flexible monthly payment as opposed to a fixed one, relieves a great deal of stress for those in the program.

ELIGIBILITY RESTRICTIONS FOR THE PRESIDENT’S PLANS

There are two major eligibility considerations required to qualify for the Pay As You Earn plan. They are listed below:

    1. The borrowers must have a Partial Financial Hardship. If the amount that you owe monthly over the standard 10 year payment plan is higher than the monthly amount under the PAYE program, you would be eligible.

    2. You must have a Direct Student loan and have taken it out on or after October 1, 2007. This program is for new borrowers and does not assist those with loans older than this date.

The Problem with President Obama’s Reforms

As you’ve probably noticed, President Obama’s student loan reforms have many catches which people have taken issue with. The main one being that these programs are under the Obama Student Loan Forgiveness act, “forgiveness” being the key word, yet they don’t forgive all student loans and the ones they do forgive are drawn out over a 10-20 year period of time.

For the PAYE program, being a “new borrower” is one of the main qualifications yet most don’t understand what this term means.

To qualify for the benefits, you must meet the following conditions:

    • You must count as a “New Borrower” on or after October 1, 2007
    • Here’s the official definition of a “New Borrower” (from the Pay as You Earn fact sheet, which you can findhere)

“You are a new borrower if you had no outstanding balance on a Direct Loan or FEEL Program loan as of Oct. 1, 2007, or if you had no outstanding balance on a Direct Loan or FEEL Program loan when you received a new Direct Loan or FEEL Program loan on or after Oct. 1, 2007. In addition, you must have received a disbursement of a Direct Subsidized Loan, Direct Unsubsidized Loan, or Direct PLUS Loan for graduate or professional students on or after Oct. 1 2011, or you must have received a Direct Consolidation Loan based on an application that was received on or after Oct. 1, 2011.”

Confused? You’re not alone. We’ve summarized it for you below. Basically, this means that:

    • Only those borrowers with Direct Loans that were taken out on or after October 1, 2007 will qualify for the Pay As You Earn program
    • Your loans taken on or after October 1, 2007 will only qualify if you don’t have any existing Direct Loans or FEEL Program Loans still in repayment which were taken out before October 1, 2007

Obviously, this does not seem at all in line with President Obama’s talks about making higher education available to everyone. “Everyone” seems to mean only those who have borrowed since 2007. Of course, there are many Americans who have been paying it off their debt for decades but owe just as much or even more than they did when they first began paying it off.

Existing student loan debt is an issue for many people as well. Recent borrowers are far from the only ones who deserve a break. If only Congress would understand this!

WHAT ABOUT PRIVATE LOANS?

Private student loans are not covered under these programs. Obama has not done anything to help those with private loans and it doesn’t seem that he will before his term is up.

This remains to be seen but for now, those with private loans are not eligible under the Obama Student Loan Forgiveness act.

POSITIVE CHANGES TO THE OBAMA STUDENT LOAN REFORMS

In addition to meeting the “new borrower” requirements, you must also qualify for “partial financial hardship.”

What is considered as a Partial Financial Hardship?

Basically, you must be able to prove that given your time, your debt to income ration and your other outstanding debt, that you are in poor standing financially.

The official definition states:

… the monthly amount you would be required to pay on your eligible federal student loans under a 10-year Standard Repayment Plan is higher than the monthly amount you would be required to repay under Pay As You Earn.

You will need to look at your monthly payments now should you pay off your loans in a 10-year period of time versus the monthly payments you’d be required to pay under the PAYE program. If all other qualifications are met and you would be paying less under PAYE, you will be eligible to enroll.

DEFAULTED LOANS

If your loans are in default you will need to get them out before you can enroll in any of the programs. The Department of Education will not accept loans that are in default status at the time of their application.

Frequently Asked Questions

WHAT IS LOAN FORGIVENESS?

In short, it is a complete cancellation of your debt.

Loan forgiveness is the best type of debt relief for many reasons, but mainly because since it involves cancelling a set amount of your debt without any need to spend any money out of pocket—unless, of course, you end up owing taxes on the forgiven amount.

The new loan forgiveness program proposed by President Obama is very exciting to many borrowers that have not been struggling to repay their debt. This is because the program allows you to completely stop paying off your loans after you’ve made 240 full, scheduled, on-time monthly repayments over 20 years of payments. As long as you’ve been consistent with your payments, whatever debt is left after those 240 payments is completely forgiven.

WHO QUALIFIES FOR THIS NEW PROGRAM?

Honestly? Not many people.

If you meet the following restrictive requirements, you qualify:

    • You have both a direct federal loan and a guaranteed federal loan
    • Both of your student loans were disbursed in 2008 or later
    • At least one of your student loans was disbursed in 2011 or later
    • Your student loans are not in default

HOW CAN I APPLY TO IT?

You are not able to apply for the loan forgiveness portion, but you can apply for the Pay As You Earn Plan.

The loan forgiveness component of the program has no application form to fill out yet. No one qualifies as of yet. The earliest anyone will be able to qualify for forgiveness is October 21, 2031.

For the Pay as You Earn Plan, the government recommends that you first contact your lender to ask them for specific details about your eligibility. After that, there is an online form you can fill out for the Income-Based (IBR)/Pay As You Earn/Income-Contingent (ICR) Repayment Plan Requests, which you can find here.

HOW DOES INCOME-BASED REPAYMENT WORK?

This may seem confusing initially, but it is actually very simple to understand.

IBR works by capping your student loan repayments at 10% of your discretionary monthly income. This refers to any income that’s above 150% of the poverty line for your family size and location.

To offer one example, a borrower whose discretionary income came out to be $100,000 a year would have to pay $833.33. Everyone’s situation is different, so you can figure out the math yourself by using the following formula:

    • Your annual discretionary income / 12 months per year * .1 = your maximum monthly payment

ARE PRIVATE LOANS COVERED?

No, they are not.

President Obama does seem to be trying to get something done about reforming private student loan debt too, but currently, there is no protection or benefit available to those with exclusively private student loans.

If you have yet to apply for student loans but know that you will need them in the future, private lenders might seem tempting. Please reconsider borrowing from private lenders for the reason stated above. There are many more options for those who take out federal student loans.

However, we have some solutions for those of you struggling with private student loan debt. For more information check out this page.

WHAT LOANS ARE ELIGIBLE?

Considering how selective the program is, only a very select few people will actually get their loans forgiven in the long run.

This is true for two main reasons. One, only direct student loans are eligible, and two, only Direct student loans issued on or after October 1, 2011 are eligible.

Additionally, loans issued on or after 2011 won’t be eligible if you had existing Direct or FEEL Program loan debt that was still in repayment when your new loan was issued.

Because of these restrictive qualification guidelines, the vast majority of people with student loan debt will not be able to take advantage of this program.

SHOULD I CONSOLIDATE MY LOANS?

It really depends on your circumstances.

If you’ve got both a direct federal loan and a guaranteed federal loan, then consolidating them will allow you to receive a .25% decrease in your monthly payment. .25% might not seem very significant, but over the course of your loan, you will begin to see the benefits of this decrease.

Some loans come with specific debt relief programs of their own, making consolidation a bad option. In addition, some come with special interest rates, and others are eligible for cancellation and forgiveness programs. The .25% decrease might not be worth it, or it might be; it would be wise to prepare, do your research, and make an educated decision before taking the plunge and consolidating your loans.

SHOULD I SIGN UP FOR AUTOMATIC PAYMENTS?

The only thing we can say to this is a resounding “yes”! This is virtually always a good idea if you are capable of making your monthly payments without issue.

Anyone who signs up for automatic payments will also receive a .25% discount in monthly payments. This is a reward for proving to the federal government that you are responsible and willing to pay your debt in full each month.

For those of you in good financial standing at present, this is a great option.

DOES THE NEW PLAN CAP STUDENT LOAN INTEREST RATES?

Yes, it does propose capping interest rates for all federal student loans at just 3.4%, which is significantly lower than what you’d be paying if you borrowed from a private lender. You’d even pay more if you were borrowing money to purchase a home.

However, this interest rate cap is only applied to loans that were taken out before July 2012. If you’re seeking a loan now, this won’t be useful to you.

ARE DEFAULTED LOANS ELIGIBLE?

No, defaulted loans are unfortunately ineligible, and many of the debt relief programs available for federal student loans won’t even be accessible if your loan enters default.

If you’re already in default, consider contacting your lender and getting out of this situation.

But if you think you’re about to go into default, look into the many available student loan deferment programs to see if you can put your loan on pause while you save up funds so that you can avoid defaulting on the loan.

(The following content was written before February 5, 2014. Some information may be outdated.)

REFORMING STUDENT LOAN DEBT RELIEF

President Obama’s student loan forgiveness plan attacks the problem of excessive student loan debt from many angles. Many of his supporters have celebrated this, while many of his political opponents have taken issue with it for the same reasons.

The President stated that the reason he is prioritizing this issue is the fact that “Student loan debt has now surpassed credit card debt for the time ever… and when a big chunk of every paycheck goes towards student loans instead of being spend on other things, that’s not just tough for middle-class families, it’s painful for the economy and it’s harmful to our recovery because that money is not going to help businesses grow.”

EARLIER STUDENT LOAN FORGIVENESS

There used to be a provision under federal law stating that student loan debt incurred via federal loan programs would be completely forgiven after 25 years, but here’s the catch: hardly anyone even knew this provision existed. Thus, hardly anyone took advantage of its many benefits.

Back in 2010, President Obama and Congress passed a bill to help further reduce the burden on former students by reducing the complete debt forgiveness timeline to a period of 20 years. This change was originally set for 2014, but recently we have learned that under President Obama’s student loan forgiveness program, the timeline for complete debt forgiveness of federal student loans has been pushed up to 2012.

This has been a great relief to an estimated 1.6 million former students, all of whom require access to debt relief and financial freedom.

NEW DEBT CONSOLIDATION OPTIONS

One of the other major aspects of Obama’s new student loan forgiveness program is the reduction the confusion and logistical problems that student loan borrowers typically face.

According to a study by his administration, an estimated 5.8 million people were managing a Direct Loan (DL) and Federal Family Education Loan (FFEL) at the same time. They were often making separate payments to the different accounts, which made the process more difficult, more time-consuming, and more likely to lead to defaults.

Under President Obama’s changes, borrowers will now be able to consolidate their student loan debt into a single account, making a single monthly payment to a single lender for both loans.

In addition, the plan offered borrowers who used the previous debt consolidation option to receive up to a 0.5% reduction in their interest rates on qualifying loans. This has ensured significantly lower monthly payments. Many people will save up to thousands of dollars over the lifespan of those loans, which is very significant.

DEBT RELIEF FOR START-UP ENTREPRENEURS

In accordance with President Obama’s student loan forgiveness program, the U.S. Small Business Administration is participating in the White House-led Startup America initiative, which recognizes the benefit of small businesses and seeks to reward young, hardworking entrepreneurs with chances to get out of student loan debt faster.

Additionally, the Young Entrepreneur Council’s private sector Gen Y Fund had claimed to invest at least $10,000,000 in up to 100 startups headed by millennials. They promised to pay off the remaining federal student loan debt obligations for the same entrepreneurs over the next three years. For many young, ambitious graduates, this is a very exciting prospect, and one that motivates them to make their start-up dreams a reality.

ADDITIONAL PUBLIC SERVICE BENEFITS

One portion of President’s recent changes to student loan forgiveness has been suspiciously downplayed by the general media, and we can’t begin to understand why. It includes a provision that will reduce public service workers’ wait times before debt forgiveness kicks in.

Previously, graduates with federal student loan debt had to serve 20 years in public service positions before receiving forgiveness, but the new provision reduces that only 10 years are necessary. This means that many grads will be drawn towards public service jobs in greater numbers.

ELIGIBILITY GUIDELINES

Obama’s student loan forgiveness program only applies to certain borrowers with eligible loans. Millions of Americans are struggling with crippling student loan debt, but not all of us will be able to qualify. In fact, many of us won’t.

Here’s the run-down that will help you figure out your own eligibility:

    • Borrowers must have taken out their federal student loans after October 1, 2007
    • Borrowers with exclusively private student loans do not qualify
    • Borrowers must meet salary-to-debt ratio conditions as determined by the IBR calculator
    • Loans cannot be in default
    • Loans already in repayment are not eligible for these new benefits

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Disability Discharge

Disability Discharge Update

  1. All of your loans must have taken out on or after October 1, 2007
  2. Your loan type must be “Direct” or “FFEL”

The official definition, from the Pay As You Earn fact sheet:

“You are a new borrower if you had no outstanding balance on a Direct Loan or FEEL Program loan as of Oct. 1, 2007, or if you had no outstanding balance on a Direct Loan or FEEL Program loan when you received a new Direct Loan or FEEL Program loan on or after Oct. 1, 2007. In addition, you must have received a disbursement of a Direct Subsidized Loan, Direct Unsubsidized Loan, or Direct PLUS Loan for graduate or professional students on or after Oct. 1 2011, or you must have received a Direct Consolidation Loan based on an application that was received on or after Oct. 1, 2011.”

As you can see from the definition, the PAYE program doesn’t help “everyone” who is paying on student loans. Obama’s objective was to make higher education affordable and accessible to “everyone” yet this program is far from that.

The good news is that other programs are available to those that don’t meet the “new borrower” criteria. IBR is a great alternative.

Corinthian Colleges

$3.6 BILLION IN FORGIVENESS FOR CORINTHIAN COLLEGES STUDENTS

Campuses affiliated with Corinthian Colleges recently received a piece of very important news. On June 8th, 2015, President Obama’s Department of Education announced that they will be offering student loan forgiveness for up to $3.6 billion dollars for student loans distributed to those attending any campuses associated with Corinthian Colleges.

The Corinthian 15 debt strike resonated deeply amidst lawmakers in Washington, D.C., leading many to believe that politicians and banks are becoming frightened of the potential for the student loan debt strike taking root with the rest of the general population as well.

For those who are unfamiliar with Corinthian, here is a bit of background about this network of schools. They consist of a large chain of for-profit colleges, all of whom advertise extensively on daytime television and are notorious for overcharging their students and inflating expectations. Some of the Corinthian colleges which you may have heard of include Everest, Heald, and WyoTech universities.

The general public is becoming increasingly jaded about the high cost of education in general, but Corinthian students have taken a particularly bad hit, and people are wising up to the scam. The Corinthian network collapsed under the weight of federal investigations responding to rampant abuse allegations, and since this system posed a serious threat to the increasing student loan debt bubble, many believe that this is a good thing.

Justice has, fortunately, been served. President Obama’s administration is now promising significant forgiveness benefits for a select number of students who are scammed by Corinthian. Unfortunately, the downside to this otherwise fantastic step forward is that the forgiveness offer is limited to people who attended a Corinthian-affiliated school on or after June 20th, 2014.

Even with these limitations set in place, this is still a vast improvement. The forgiveness offer sets a great precedent for the response to excessive student loan debt, and shows that the President has concern for American youth struggling under the weight of student loan debt.

PRESIDENT OBAMA’S “KNOW BEFORE YOU OWE” PROJECT

In attempts to avoid financial hardship due to student loans, the Consumer Financial Bureau (CFPB) and Department of Education are working to help students and their families better understand their loan options and costs. So upon repayment, they are clear on the monthly and yearly costs and duration they will be paying back on the loans.

The cost of college is soaring and has been steadily increasing for over a decade. That means people are having to pay more out of pocket and take out more loans to meet these costs. The average student takes out roughly $30,000 in loans to pay for college.

The issue arises because few understand what student loans mean for their future. The problem is that students and families are receiving all their financial aid information from the college itself. They get packets filled with unfamiliar acronyms and baffling language. For those who read through this information they will be hard pressed to find the true debt burden; even the basics like principal, interest, and monthly payments are unclear.

The CFPB and Department of Education have teamed up to created a “financial aid shopping sheet,” as a solution to the problem. This is one of the “Know Before You Go Initiatives” which standardizes the language and terms, and clearly states the terms of the loans.

What does all of this mean?

If you’re still paying off your federal student loans you have two options:

1. You can continue to pay on your loans every month and stay with your current lender
OR…
2. Enroll in one of the programs under the Obama Student Loan Forgiveness act

A lot of you may be asking yourself, which route should I take? If ANY of the following apply to you I say “yes” to enrolling in one of the Obama Student Loan Forgiveness programs:

* You can’t afford your current monthly payments with your lender
* You can afford your monthly payment with your lender but it would help you a lot financially to get them lowered
* You work for a government or non-profit agency
* You’re a teacher, nurse, police office or firefighter
* You make under $35,000 a year
* You are considered a low-income family
* You want to pay smaller amounts towards your loans over a longer period of time

If any of the above are relevant to your situation, and you qualify for one of the programs, you’ll instantly see a reduction in your monthly payments. Some borrowers qualify for the $0 monthly payment, which is the best available option and gives you full forgiveness at the end of your program.

Not everyone will see their loans fully forgiven however, those who qualify for these programs will be paying less each month and over the long-run. Give us a call or submit your information to get qualified and enrolled.

What Do You Think?

Both Democrats and Republicans have shared their perspectives on the student loan forgiveness program, but your view is important too. Do you think that it will provide effective relief to our current student loan debt crisis, or are the eligibility requirements too strict to make any real difference? Is Obama making the right choice by investing in college graduates’ futures, or are there more important policies he should be focusing his energy on right now?

Please reach out and share your perspective with us.

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